##### Table of Contents



UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED September 30, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE TRANSITION PERIOD FROM  TO
 Commission File number 0-25033
 Superior Bancorp
 (Exact Name of Registrant as Specified in its Charter)
 Delaware
    
    63-1201350(State or Other Jurisdiction of Incorporation)
    
    (IRS Employer Identification No.)
 17 North 20th Street, Birmingham, Alabama 35203
 (Registrants Telephone Number, Including Area Code)
  þ o
  o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting companyo
  o þ
  Class
    
    Outstanding as of September 30, 2009Common stock, $.001 par value
    
    11,624,279




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##### 



TABLE OF CONTENTS
 PART I FINANCIAL INFORMATION
    
    
    3ITEM 1. FINANCIAL STATEMENTS
    
    
    3ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
    
    
    25ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
    
    
    55ITEM 4. CONTROLS AND PROCEDURES
    
    
    56PART II. OTHER INFORMATION
    
    
    56ITEM 1. LEGAL PROCEEDINGS
    
    
    56ITEM 1A. RISK FACTORS
    
    
    57ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    57ITEM 3. DEFAULTS UPON SENIOR SECURITIES
    
    
    57ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    58ITEM 5. OTHER INFORMATION
    
    
    58ITEM 6. EXHIBITS
    
    
    58SIGNATURES
    
    
    59EX-31.1EX-31.2EX-32.1EX-32.2
  2




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SUPERIOR BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except per share data)
 September 30,
    
    
    December 31,2009
    
    
    2008(UNAUDITED)ASSETSCash and due from banks
    
    $
    57,364
    
    
    $
    74,237Interest-bearing deposits in other banks
    
    
    73,976
    
    
    
    10,042Federal funds sold
    
    
    990
    
    
    
    5,169Total cash and cash equivalents
    
    
    132,330
    
    
    
    89,448Investment securities available for sale
    
    
    296,882
    
    
    
    347,142Tax lien certificates
    
    
    24,700
    
    
    
    23,786Mortgage loans held for sale
    
    
    58,704
    
    
    
    22,040Loans, net of unearned income
    
    
    2,434,534
    
    
    
    2,314,921Allowance for loan losses
    
    
    (34,336
    )
    
    
    (28,850
    )Net loans
    
    
    2,400,198
    
    
    
    2,286,071Premises and equipment, net
    
    
    104,764
    
    
    
    104,085Accrued interest receivable
    
    
    15,540
    
    
    
    14,794Stock in FHLB
    
    
    18,212
    
    
    
    21,410Cash surrender value of life insurance
    
    
    49,655
    
    
    
    48,291Core deposit and other intangible assets
    
    
    17,784
    
    
    
    21,052Other real estate
    
    
    42,259
    
    
    
    19,971Other assets
    
    
    65,542
    
    
    
    54,611Total assets
    
    $
    3,226,570
    
    
    $
    3,052,701LIABILITIES AND STOCKHOLDERS EQUITYDeposits:Noninterest-bearing
    
    $
    255,196
    
    
    $
    212,732Interest-bearing
    
    
    2,364,765
    
    
    
    2,130,256Total deposits
    
    
    2,619,961
    
    
    
    2,342,988Advances from FHLB
    
    
    218,321
    
    
    
    361,324Security repurchase agreements
    
    
    1,652
    
    
    
    3,563Notes payable
    
    
    45,801
    
    
    
    7,000Subordinated debentures, net
    
    
    60,720
    
    
    
    60,884Accrued expenses and other liabilities
    
    
    35,385
    
    
    
    25,703Total liabilities
    
    
    2,981,840
    
    
    
    2,801,462Commitments and contingenciesStockholders equity:Preferred stock, par value $.001 per share; shares authorized 5,000,000:Series A, fixed rate cumulative perpetual preferred stock, 69,000
shares issued and outstanding at September 30, 2009 and December 31,
2008, respectively
    
    
    
    
    
    
    Common stock, par value $.001 per share; shares authorized 20,000,000;
shares issued 11,624,279 and 10,403,087 respectively; outstanding
11,624,279 and 10,074,999 respectively
    
    
    12
    
    
    
    10Surplus  preferred
    
    
    63,868
    
    
    
    62,978 warrants
    
    
    8,646
    
    
    
    8,646 common
    
    
    321,840
    
    
    
    329,461Accumulated deficit
    
    
    (141,770
    )
    
    
    (129,904
    )Accumulated other comprehensive loss
    
    
    (7,501
    )
    
    
    (7,925
    )Treasury stock, at cost  -0- and 321,485 shares, respectively
    
    
    
    
    
    
    (11,373
    )Unearned ESOP stock
    
    
    (308
    )
    
    
    (443
    )Unearned restricted stock
    
    
    (57
    )
    
    
    (211
    )Total stockholders equity
    
    
    244,730
    
    
    
    251,239Total liabilities and stockholders equity
    
    $
    3,226,570
    
    
    $
    3,052,701
  3




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SUPERIOR BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Amounts in thousands, except per share data)


Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008INTEREST INCOMEInterest and fees on loans
    
    $
    36,783
    
    
    $
    36,664
    
    
    $
    107,693
    
    
    $
    110,717Interest on taxable securities
    
    
    3,362
    
    
    
    4,106
    
    
    
    11,148
    
    
    
    12,302Interest on tax-exempt securities
    
    
    432
    
    
    
    430
    
    
    
    1,295
    
    
    
    1,291Interest on federal funds sold
    
    
    1
    
    
    
    17
    
    
    
    8
    
    
    
    114Interest and dividends on other investments
    
    
    471
    
    
    
    663
    
    
    
    1,289
    
    
    
    2,039Total interest income
    
    
    41,049
    
    
    
    41,880
    
    
    
    121,433
    
    
    
    126,463INTEREST EXPENSEInterest on deposits
    
    
    13,315
    
    
    
    16,010
    
    
    
    42,317
    
    
    
    52,972Interest on other borrowed funds
    
    
    2,619
    
    
    
    3,290
    
    
    
    7,558
    
    
    
    9,098Interest on subordinated debentures
    
    
    1,202
    
    
    
    954
    
    
    
    3,602
    
    
    
    2,887Total interest expense
    
    
    17,136
    
    
    
    20,254
    
    
    
    53,477
    
    
    
    64,957NET INTEREST INCOME
    
    
    23,913
    
    
    
    21,626
    
    
    
    67,956
    
    
    
    61,506Provision for loan losses
    
    
    5,169
    
    
    
    2,305
    
    
    
    14,602
    
    
    
    10,143NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES
    
    
    18,744
    
    
    
    19,321
    
    
    
    53,354
    
    
    
    51,363NONINTEREST INCOMEService charges and fees on deposits
    
    
    2,595
    
    
    
    2,425
    
    
    
    7,506
    
    
    
    6,721Mortgage banking income
    
    
    1,506
    
    
    
    820
    
    
    
    5,468
    
    
    
    3,117Investment
security gains (losses)Gain on sale of securities
    
    
    5,644
    
    
    NA
   
 
    
    5,644
    
    
    NATotal other-than-temporary impairment losses
(OTTI) (see Note 3)
    
    
    (3,478
    )
    
    NA
        
    
    (20,669
    )
    
    NAPortion of OTTI recognized in (transferred from)
other comprehensive income
    
    
    (45
    )
    
    NA
        
    
    5,519
    
    
    NAInvestment securities (loss) gain
    
    
    (2,121
    )
    
    
    (8,541
    )
    
    
    (9,506
    )
    
    
    (7,072
    )Change in fair value of derivatives
    
    
    435
    
    
    
    141
    
    
    
    170
    
    
    
    773Increase in cash surrender value of life insurance
    
    
    568
    
    
    
    583
    
    
    
    1,623
    
    
    
    1,689Gain on extinguishment of liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,918Other income
    
    
    1,254
    
    
    
    1,359
    
    
    
    3,811
    
    
    
    4,247TOTAL NONINTEREST INCOME
    
    
    8,479
    
    
    
    (3,213
    )
    
    
    9,072
    
    
    
    12,393NONINTEREST EXPENSESSalaries and employee benefits
    
    
    12,234
    
    
    
    12,379
    
    
    
    36,976
    
    
    
    36,577Occupancy, furniture and equipment expense
    
    
    4,478
    
    
    
    4,434
    
    
    
    13,397
    
    
    
    12,614Amortization of core deposit intangibles
    
    
    985
    
    
    
    896
    
    
    
    2,956
    
    
    
    2,688FDIC assessment
    
    
    921
    
    
    
    433
    
    
    
    3,310
    
    
    
    657Foreclosure losses
    
    
    1,337
    
    
    
    190
    
    
    
    3,656
    
    
    
    552Other expenses
    
    
    5,687
    
    
    
    5,576
    
    
    
    17,207
    
    
    
    16,358TOTAL NONINTEREST EXPENSES
    
    
    25,642
    
    
    
    23,908
    
    
    
    77,502
    
    
    
    69,446Income (loss) before income taxes
    
    
    1,581
    
    
    
    (7,800
    )
    
    
    (15,076
    )
    
    
    (5,690
    )INCOME TAX EXPENSE (BENEFIT)
    
    
    701
    
    
    
    (1,292
    )
    
    
    (6,686
    )
    
    
    (719
    )NET INCOME (LOSS)
    
    
    880
    
    
    
    (6,508
    )
    
    
    (8,390
    )
    
    
    (4,971
    )Preferred stock dividends and amortization
    
    
    1,167
    
    
    
    
    
    
    
    3,477
    
    
    
    NET (LOSS) INCOME APPLICABLE TO COMMON STOCKHOLDERS
    
    $
    (287
    )
    
    $
    (6,508
    )
    
    $
    (11,867
    )
    
    $
    (4,971
    )BASIC NET (LOSS) INCOME PER COMMON SHARE
    
    $
    (0.03
    )
    
    $
    (0.65
    )
    
    $
    (1.14
    )
    
    $
    (0.50
    )DILUTED NET (LOSS) INCOME PER COMMON SHARE
    
    $
    (0.03
    )
    
    $
    (0.65
    )
    
    $
    (1.14
    )
    
    $
    (0.50
    )Weighted average common shares outstanding
    
    
    10,984
    
    
    
    10,023
    
    
    
    10,373
    
    
    
    10,017Weighted average common shares outstanding,
assuming dilution
    
    
    10,984
    
    
    
    10,023
    
    
    
    10,373
    
    
    
    10,017




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SUPERIOR BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
(Dollars in thousands)
 Nine Months EndedSeptember 30,2009
    
    
    2008NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES
    
    $
    (23,537
    )
    
    $
    28,439CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from sales of securities available for sale
    
    
    157,614
    
    
    
    37,633Proceeds from maturities of investment securities available for sale
    
    
    57,334
    
    
    
    100,906Purchases of investment securities available for sale
    
    
    (162,586
    )
    
    
    (129,229
    )Redemption of tax lien certificates
    
    
    29,909
    
    
    
    17,523Purchase of tax lien certificates
    
    
    (30,823
    )
    
    
    (20,785
    )Net increase in loans
    
    
    (164,713
    )
    
    
    (233,613
    )Purchases of premises and equipment
    
    
    (6,616
    )
    
    
    (10,193
    )Proceeds from sale of premises and equipment
    
    
    376
    
    
    
    7,637Proceeds from sale of repossessed assets
    
    
    11,149
    
    
    
    5,522Decrease (increase) in stock in FHLB
    
    
    3,199
    
    
    
    (10,020
    )Other
investing activities, net
    
    
    
    
    
    
    (324
    )Net cash used by investing activities
    
    
    (105,157
    )
    
    
    (234,943
    )CASH FLOWS FROM FINANCING ACTIVITIES:Net increase in deposits
    
    
    277,130
    
    
    
    24,760Net (decrease) increase in FHLB advances and other borrowed funds
    
    
    (145,033
    )
    
    
    206,296Payments on notes payable
    
    
    
    
    
    
    (9,500
    )Proceeds from notes payable
    
    
    38,575
    
    
    
    10,000Proceeds from issuance of subordinated debenture
    
    
    
    
    
    
    10,000Proceeds from issuance of common stock
    
    
    3,299
    
    
    
    Preferred cash dividend paid
    
    
    (2,395
    )
    
    
    Net cash provided by financing activities
    
    
    171,576
    
    
    
    241,556Net increase in cash and cash equivalents
    
    
    42,882
    
    
    
    35,052CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    89,448
    
    
    
    52,983CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    132,330
    
    
    $
    88,035
  5




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##### Table of Contents



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Note 1  Basis of Presentation
   Note 2  Recent Accounting Pronouncements
  
    
    Accounting Standards Codification (ASC) 820-10, Determining Fair Value When the Volume
and Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly (ASC 820-10") provides guidelines for making
fair value measurements more consistent by emphasizing that even if there has been a
significant decrease in the volume and level of activity for the asset or liability and
regardless of the valuation technique used, the objective of a fair value measurement
remains the same. Fair value is the price that would be received in a sale of an asset or
paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or
distressed sale), between market participants at the measurement date under current market
conditions.
 
    
    ASC 320-10, Recognition and Presentation of Other-than-temporary impairments (ASC
320-10)provides additional guidance designed to create greater clarity and consistency in
accounting for and presenting impairment losses on securities. It amends OTTI impairment
guidance for debt securities to make the guidance more operational and to improve the
presentation and disclosure of OTTI on debt and equity securities in the financial
statements. It does not amend existing recognition and measurement guidance related to OTTI
of equity securities.
 
    
    ASC 825-10 and ASC 270-10, Interim Disclosures about Fair Value of Financial Instruments
(ASC 825-10 and ASC 270-10)enhances consistency in financial reporting by increasing the
frequency of fair value disclosures.
  ASC 815-10, Disclosures About Derivative Instruments and Hedging Activities (ASC 815-10),
 6




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ASC 855-10, Subsequent Events (ASC 855-10),
 Topic 860, Accounting for Transfers of Financial Assets, an Amendment of ASC 860-10, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (Topic 860)
 FASB issued guidance related to the consolidation of Variable Interest Entities
 ASC 105-10,The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles (ASC 105-10)
 7




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Note 3  Investment Securities
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value(In Thousands)Investment securities available for sale:U.S. agency securities
    
    $
    54,199
    
    
    $
    1,009
    
    
    $
    1,072
    
    
    $
    54,136Mortgage-backed securities (MBS):U.S. Agency MBS  residential
    
    
    167,096
    
    
    
    2,914
    
    
    
    19
    
    
    
    169,991U.S. Agency MBS  collateralized mortgage obligation (CMO)
    
    
    13,230
    
    
    
    18
    
    
    
    63
    
    
    
    13,185Private-label  CMO
    
    
    20,968
    
    
    
    110
    
    
    
    3,899
    
    
    
    17,179Total MBS
    
    
    201,294
    
    
    
    3,042
    
    
    
    3,981
    
    
    
    200,355State, county and municipal securities
    
    
    31,681
    
    
    
    1,209
    
    
    
    89
    
    
    
    32,801Corporate obligations:Corporate debt
    
    
    4,156
    
    
    
    
    
    
    
    156
    
    
    
    4,000Pooled trust preferred securities
    
    
    8,714
    
    
    
    
    
    
    
    4,900
    
    
    
    3,814Single issue trust preferred security
    
    
    5,000
    
    
    
    
    
    
    
    3,764
    
    
    
    1,236Total corporate obligations
    
    
    17,870
    
    
    
    
    
    
    
    8,820
    
    
    
    9,050Equity securities
    
    
    563
    
    
    
    38
    
    
    
    61
    
    
    
    540Total investment securities available for sale
    
    $
    305,607
    
    
    $
    5,298
    
    
    $
    14,023
    
    
    $
    296,882
   Securities AvailableFor SaleAmortized
    
    
    EstimatedCost
    
    
    Fair Value(In Thousands)Due in one year or less
    
    $
    530
    
    
    $
    532Due after one year through five years
    
    
    7,185
    
    
    
    7,138Due after five years through ten years
    
    
    39,586
    
    
    
    39,653Due after ten years
    
    
    57,012
    
    
    
    49,204Mortgage-backed securities
    
    
    201,294
    
    
    
    200,355$
    305,607
    
    
    $
    296,882
  8




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September 30, 2009Less Than 12 Months
    
    
    More Than 12 Months
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedFair Value
    
    
    Losses (1)
    
    
    Fair Value
    
    
    Losses (1)
    
    
    Fair Value
    
    
    Losses (1)(In thousands)Temporarily ImpairedU.S. Agency securities
    
    $
    39,367
    
    
    $
    1,072
    
    
    $
    
    
    
    $
    
    
    
    $
    39,367
    
    
    $
    1,072Mortgage-backed securities:U.S. Agency MBS  residential
    
    
    6,301
    
    
    
    12
    
    
    
    243
    
    
    
    7
    
    
    
    6,544
    
    
    
    19U.S. Agency MBS  CMO
    
    
    6,132
    
    
    
    63
    
    
    
    
    
    
    
    
    
    
    
    6,132
    
    
    
    63Private-label  CMO
    
    
    132
    
    
    
    4
    
    
    
    12,804
    
    
    
    2,063
    
    
    
    12,936
    
    
    
    2,067Total MBS
    
    
    12,565
    
    
    
    79
    
    
    
    13,047
    
    
    
    2,070
    
    
    
    25,612
    
    
    
    2,149State, county and municipal securities
    
    
    613
    
    
    
    16
    
    
    
    1,368
    
    
    
    73
    
    
    
    1,981
    
    
    
    89Corporate obligations:Corporate debt
    
    
    
    
    
    
    
    
    
    
    4,000
    
    
    
    156
    
    
    
    4,000
    
    
    
    156Pooled trust preferred securities
    
    
    
    
    
    
    
    
    
    
    1,046
    
    
    
    1,103
    
    
    
    1,046
    
    
    
    1,103Single issue trust preferred securities
    
    
    
    
    
    
    
    
    
    
    1,236
    
    
    
    3,764
    
    
    
    1,236
    
    
    
    3,764Total corporate obligations
    
    
    
    
    
    
    
    
    
    
    6,282
    
    
    
    5,023
    
    
    
    6,282
    
    
    
    5,023Equity securities
    
    
    
    
    
    
    
    
    
    
    223
    
    
    
    61
    
    
    
    223
    
    
    
    61Total temporarily impaired securities
    
    
    52,545
    
    
    
    1,167
    
    
    
    20,920
    
    
    
    7,227
    
    
    
    73,465
    
    
    
    8,394Other-than-temporarily ImpairedMortgage-backed securities:Private-label  CMO
    
    
    
    
    
    
    
    
    
    
    3,775
    
    
    
    1,832
    
    
    
    3,775
    
    
    
    1,832Corporate obligations:Pooled trust preferred securities
    
    
    
    
    
    
    
    
    
    
    2,768
    
    
    
    3,797
    
    
    
    2,768
    
    
    
    3,797Total OTTI securities
    
    
    
    
    
    
    
    
    
    
    6,543
    
    
    
    5,629
    
    
    
    6,543
    
    
    
    5,629Total temporarily and
other-than-temporarily impaired
    
    $
    52,545
    
    
    $
    1,167
    
    
    $
    27,463
    
    
    $
    12,856
    
    
    $
    80,008
    
    
    $
    14,023
 
 (1)
    
     Unrealized losses are included in other comprehensive income (loss), net of unrealized
gains and applicable income taxes. 9




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##### Table of Contents



September 30, 2009Total Number of SecuritiesLess Than 12
    
    Greater ThanMonths
    
    12 Months
    
    TotalTemporarily ImpairedU.S. Agency securities
    
    
    8
    
    
    
    
    
    
    
    8Mortgage-backed securities:U.S. Agency MBS  residential
    
    
    2
    
    
    
    1
    
    
    
    3U.S. Agency MBS  CMO
    
    
    1
    
    
    
    
    
    
    
    1Private-label  CMO
    
    
    1
    
    
    
    7
    
    
    
    8Total MBS
    
    
    4
    
    
    
    8
    
    
    
    12State, county and municipal securities
    
    
    2
    
    
    
    5
    
    
    
    7Corporate obligations:Corporate debt
    
    
    
    
    
    
    3
    
    
    
    3Pooled trust preferred securities
    
    
    
    
    
    
    1
    
    
    
    1Single issue trust preferred security
    
    
    
    
    
    
    1
    
    
    
    1Total corporate obligations
    
    
    
    
    
    
    5
    
    
    
    5Equity securities
    
    
    
    
    
    
    1
    
    
    
    1Total temporarily impaired securities
    
    
    14
    
    
    
    19
    
    
    
    33Other-than-temporarily ImpairedMortgage-backed securities:Private-label  CMO
    
    
    
    
    
    
    4
    
    
    
    4Corporate obligations:Pooled trust preferred securities
    
    
    
    
    
    
    4
    
    
    
    4Total OTTI securities
    
    
    
    
    
    
    8
    
    
    
    8Total temporarily and other-than-temporarily impaired
    
    
    14
    
    
    
    27
    
    
    
    41
 Other-Than-Temporary-Impairment
 ASC
320-10 guidance.
    10




---



##### Table of Contents



Credit SupportRating
    
    
    
    Coverage
    
    UnrealizedMoody/Fitch
    
    Count
    
    Ratios (1)
    
    Loss (Gain)A1/NR
    
    1
    
    3.47
    
    $
    (105
    )Aaa/NR
    
    1
    
    4.45
    
    
    (22
    )Aaa/NR
    
    1
    
    8.64
    
    
    (4
    )NR/AAA
    
    1
    
    8.86
    
    
    (441
    )NR/AA
    
    1
    
    2.78
    
    
    (468
    )NR/BBB
    
    1
    
    3.58
    
    
    (143
    )Baa2/AA
    
    1
    
    N/A
    
    
    (688
    )B2/NR
    
    1
    
    4.16
    
    
    (196
    )Caa1/CCC(2)
    
    1
    
    1.63
    
    
    (1,762
    )CA/NR (2)
    
    1
    
    0
    
    
    (17
    )NR/C (2)
    
    2
    
    0.38  0.60
    
    
    57Total
    
    12
    
    
    
    $
    (3,789
    )
 
 (1)
    
    The Credit Support Coverage Ratio, which is the ratio that determines the multiple of credit
support, based on assumptions for the performance of the loans within the delinquency
pipeline. The assumptions used are: Current Collateral Support/ ((60 day delinquencies x.60) +
(90 day delinquencies x.70) + (foreclosures x 1.00) + (other real estate x 1.00)) x .40 for
loss severity.(2)
    
    Includes all private-label CMOs that have OTTI. See discussion that follows. 11




---



##### Table of Contents



Life-to-DateOther-than-temporary Impairment (OTTI)Discount
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Actual
    
    
    Credit PortionMargin
    
    
    
    
    
    
    Cumulative
    
    
    Average
    
    
    60+ DaysSecurity
    
    Price (%)
    
    
    (Basis Points)
    
    
    Yield
    
    
    Default
    
    
    Severity
    
    
    Delinquent
    
    
    2008
    
    
    2009
    
    
    Other
    
    
    TotalCMO 1
    
    
    21.60
    
    
    
    1673
    
    
    
    18.00
    %
    
    
    56.56
    %
    
    
    50.00
    %
    
    
    28.01
    %
    
    $
    (599
    )
    
    $
    (1,231
    )
    
    $
    110
    
    
    $
    (1,720
    )CMO 2
    
    
    4.54
    
    
    
    1772
    
    
    
    18.00
    %
    
    
    57.38
    %
    
    
    60.00
    %
    
    
    29.80
    %
    
    
    (492
    )
    
    
    (1,382
    )
    
    
    (17
    )
    
    
    (1,891
    )CMO 3
    
    
    23.42
    
    
    
    1573
    
    
    
    17.00
    %
    
    
    45.27
    %
    
    
    45.00
    %
    
    
    20.42
    %
    
    
    (803
    )
    
    
    (1,558
    )
    
    
    (53
    )
    
    
    (2,414
    )CMO 4
    
    
    58.96
    
    
    
    1393
    
    
    
    17.00
    %
    
    
    26.60
    %
    
    
    45.00
    %
    
    
    13.81
    %
    
    
    
    
    
    
    (290
    )
    
    
    (1,762
    )
    
    
    (2,052
    )$
    (1,894
    )
    
    $
    (4,461
    )
    
    $
    (1,722
    )
    
    $
    (8,077
    )
      
    
    Detailed credit and structural evaluation for each piece of collateral in the CDO;
 
    
    Collateral performance projections for each piece of
collateral in the CDO (default, recovery and prepayment/amortization probabilities);
 
    
    Terms of the CDO structure, as laid out in the indenture:
 
    
    The cash flow waterfall (for both interest and principal);
 
    
    Overcollateralization and interest coverage tests;
 
    
    Events of default/liquidation;
 
    
    Mandatory auction call;
 
    
    Optional redemption; and
 
    
    Hedge agreements; and discounted cash flow modeling.
  12




---



##### Table of Contents



YTDOther-than-temporary Impairment(OTTI)Single/
    
    Class/
    
    Amortized
    
    
    Fair
    
    
    Unrealized
    
    
    CreditName
    
    Pooled
    
    Tranche
    
    Cost
    
    
    Value
    
    
    Loss
    
    
    Portion
    
    
    Other
    
    
    TotalMM Caps Funding I Ltd
    
    Pooled
    
    M
    
    $
    2,150
    
    
    $
    1,046
    
    
    $
    (1,104
    )
    
    $
    
    
    
    $
    
    
    
    $
    MM Community Funding Ltd
    
    Pooled
    
    B
    
    
    2,175
    
    
    
    1,152
    
    
    
    (1,023
    )
    
    
    (2,826
    )
    
    
    (1,023
    )
    
    
    (3,849
    )Preferred Term Securities V
    
    Pooled
    
    M
    
    
    1,323
    
    
    
    473
    
    
    
    (850
    )
    
    
    (54
    )
    
    
    (850
    )
    
    
    (904
    )Tpref Funding III Ltd
    
    Pooled
    
    B-2
    
    
    3,051
    
    
    
    1,143
    
    
    
    (1,908
    )
    
    
    (949
    )
    
    
    (1,908
    )
    
    
    (2,857
    )Trapeza 200713A LLC
    
    Pooled
    
    D
    
    
    15
    
    
    
    
    
    
    
    (15
    )
    
    
    (1,861
    )
    
    
    (15
    )
    
    
    (1,876
    )New South Capital Corp
    (1)
    Single
    
    Sole
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,000
    )
    
    
    
    
    
    
    (5,000
    )Emigrant Capital Trust
    (2)
    Single
    
    Sole
    
    
    5,000
    
    
    
    1,236
    
    
    
    (3,764
    )
    
    
    
    
    
    
    
    
    
    
    $
    13,714
    
    
    $
    5,050
    
    
    $
    (8,664
    )
    
    $
    (10,690
    )
    
    $
    (3,796
    )
    
    $
    (14,486
    )
 Original Collateral
    
    
    Performing CollateralPercent of Actual
    
    
    Percent of Expected
    
    
    (3)Lowest
    
    Performing
    
    Deferrals and
    
    
    Deferrals and
    
    
    ExcessName
    
    Rating
    
    Banks
    
    Defaults
    
    
    Defaults
    
    
    SubordinationMM Caps Funding I Ltd
    
    Ca
    
    26
    
    
    9%
    
    
    
    19%
    
    
    
    4%MM Community Funding Ltd
    
    Ca
    
    10
    
    
    15%
    
    
    
    51%
    
    
    
    0%Preferred Term Securities V
    
    Ba3
    
    1
    
    
    5%
    
    
    
    52%
    
    
    
    0%Tpref Funding III Ltd
    
    Ca
    
    25
    
    
    23%
    
    
    
    23%
    
    
    
    0%Trapeza 200713A LLC
    
    C
    
    40
    
    
    25%
    
    
    
    26%
    
    
    
    0%New South Capital Corp
    (1)
    NR
    
    NA
    
    NA
    
    NA
    
    NAEmigrant Capital Trust
    (2)
    CC
    
    NA
    
    NA
    
    NA
    
    NA
 Fair Value (Price
    
    
    Discount Margin
    
    
    CurrentYieldName
    
    to Par)
    
    
    (Basis Points)
    
    
    (Basis Points)MM Caps Funding I Ltd
    
    $
    52.30
    
    
    Swap + 1500
    
    9.48% FixedMM Community Funding Ltd
    
    
    23.03
    
    
    LIBOR + 1400
    
    LIBOR + 310Preferred Term Securities V
    
    
    34.35
    
    
    LIBOR + 1500
    
    LIBOR + 210Tpref Funding III Ltd
    
    
    28.57
    
    
    LIBOR + 1300
    
    LIBOR + 190Trapeza 2007-13A LLC
    
    
    0.01
    
    
    LIBOR + 1800
    
    LIBOR + 120Emigrant Capital Trust
    (2)
    
    24.72
    
    
    LIBOR + 1806
    
    LIBOR + 200
 
 (1)
    
    Management received notification in April 2009 that interest payments on this issue will be
deferred for up to 20 quarters. In addition, New Souths external auditor issued a going
concern opinion on May 2, 2009. Management determined that there was not sufficient positive
evidence that this issue will ever pay principal or interest subsequent to December 31, 2008.
Therefore, OTTI was recognized on the full amount of the security during the first quarter of
2009. 13




---



##### Table of Contents



(2)
    
    There has been no notification of deferral or default on this issue. An analysis of the
company indicates there is adequate capital and liquidity to service the debt. The discount
margin of 1806 basis points was derived from implied credit spreads from certain publicly
traded trust preferred securities within the issuers peer group.(3)
    
    Excess subordination represents the additional defaults in excess of both the current and
projected defaults the issue can absorb before the security experiences any credit impairment.
Excess subordination is calculated by determining what level of defaults an issue can
experience before the security has any credit impairment and then subtracting both the current
and projected future defaults.    For the Three-
    
    
    For the Nine-Months Ended
    
    
    Months EndedSeptember 30, 2009
    
    
    September 30, 2009Balance at beginning of period
    
    $
    11,626
    
    
    $
    Amounts related to credit losses for which an OTTI was not previously recognized
    
    
    344
    
    
    
    10,980Reductions for securities sold during the period
    
    
    
    
    
    
    Increases in credit loss for which an OTTI was previously recognized when the
investor does not intend to sell the security and it is not more likely than not
that the entity will be required to sell the security before recovery of its
amortized cost
    
    
    3,180
    
    
    
    4,170Reductions for securities where there is an intent to sale or requirement to sale
    
    
    
    
    
    
    Reductions for increases in cash flows expected to be collected
    
    
    
    
    
    
    Balance at end of period
    
    $
    15,150
    
    
    $
    15,150
     
    
    The significance of the decline in net assets of FHLB Atlanta as compared to the capital
stock amount for FHLB Atlanta and the length of time this decline has
persisted;
 
    
    Commitments by FHLB Atlanta to make payments required by law or regulation and the level
of such payments in relation to the operating performance of FHLB
Atlanta;
    
    The impact of legislative and regulatory changes on financial institutions and,
accordingly, on the customer base of FHLB Atlanta; and
    
    The liquidity position of FHLB Atlanta.
  14




---



##### Table of Contents



Note 4  Notes Payable
  Note payable to bank, borrowed under $7,000,000 line of credit, due September 3, 2010;
interest is based on Wall Street prime plus 1.25 but not less than 4.5%, secured by 100% of the outstanding Superior Bank
stock
    
    $
    7,000Senior note guaranteed under the TLGP, due March 30, 2012, 2.625% fixed rate due semi-annually
    
    
    40,000Less: Discount, FDIC guarantee premium and other issuance costs
    
    
    (1,199
    )Total notes payable
    
    $
    45,801
   Note 5  Derivative Financial Instruments
   Interest Rate Swaps
   Fair Value Hedges
  15




---



##### Table of Contents



Cash Flow Hedges
  Interest Rate Lock Commitments
   September 30, 2009
    
    
    December 31, 2008Notional
    
    
    Estimated
    
    
    Notional
    
    
    EstimatedAmount
    
    
    Fair Value
    
    
    Amount
    
    
    Fair ValueInterest rate derivatives designated as hedges of fair value:Interest rate swap on brokered certificates of deposit
    
    $
    2,777
    
    
    $
    279
    
    
    $
    5,334
    
    
    $
    799Interest rate derivatives designated as hedges of cash flows:Interest rate swaps on subordinated debenture
    
    
    22,000
    
    
    
    (849
    )
    
    
    22,000
    
    
    
    (954
    )Non-hedging interest rate derivatives:Brokered certificates of deposit interest rate swap
    
    
    723
    
    
    
    70
    
    
    
    1,166
    
    
    
    164Mortgage loan held for sale interest rate lock commitment
    
    
    85,105
    
    
    
    598
    
    
    
    92,721
    
    
    
    (117
    )Commercial loan interest rate swap
    
    
    3,791
    
    
    
    359
    
    
    
    3,861
    
    
    
    462Commercial loan interest rate swap
    
    
    3,791
    
    
    
    (359
    )
    
    
    3,861
    
    
    
    (462
    )
  Weighted-AverageInterest
    
    
    InterestRate
    
    
    RatePaid
    
    
    ReceivedInterest rate swaps:Fair value hedge on brokered certificates of deposit interest rate swap
    
    
    0.52
    %
    
    
    4.70
    %Cash flow hedge interest rate swaps on subordinated debentures
    
    
    4.42
    
    
    
    1.63Non-hedging interest rate swap on commercial loan
    
    
    6.73
    
    
    
    6.73
 Gains, Losses and Derivative Cash Flows
  16




---



##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Interest rate swap on brokered certificates of deposit:Amount of gain (loss) included in interest expense on deposits
    
    $
    29
    
    
    $
    
    
    
    $
    79
    
    
    $
    27Amount of gain (loss) included in other noninterest income
    
    
    (12
    )
    
    
    
    
    
    
    (492
    )
    
    
    (5
    )
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Interest rate swap on subordinated debenture:Net gain (loss) included in interest expense on subordinated debt
    
    $
    (142
    )
    
    $
    
    
    
    $
    (301
    )
    
    $
    Amount of gain (loss) recognized in other comprehensive income
    
    
    (138
    )
    
    
    
    
    
    
    66
    
    
    
    
    Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Non-hedging interest rate derivatives:Brokered certificates of deposit interest rate swap
    
    $
    19
    
    
    $
    95
    
    
    $
    (53
    )
    
    $
    132Mortgage loan held for sale interest rate lock commitment
    
    
    428
    
    
    
    46
    
    
    
    715
    
    
    
    (65
    )Interest rate floors
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    678Commercial loan interest rate swap
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34
 Counterparty Credit Risk
   17




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##### Table of Contents



Note 6  Segment Reporting
   Total
    
    
    
    
    
    
    SuperiorAlabama
    
    
    Florida
    
    
    Alabama and
    
    
    Administrative
    
    
    BancorpRegion
    
    
    Region
    
    
    Florida
    
    
    and Other
    
    
    CombinedThree months ended September 30, 2009Net interest income
    
    $
    9,247
    
    
    $
    9,828
    
    
    $
    19,075
    
    
    $
    4,838
    
    
    $
    23,913Provision for loan losses
    
    
    1,398
    
    
    
    3,536
    
    
    
    4,934
    
    
    
    235
    
    
    
    5,169Noninterest income
    
    
    2,241
    
    
    
    483
    
    
    
    2,724
    
    
    
    5,755
    
    
    
    8,479Noninterest expense
    
    
    8,737
    
    
    
    5,911
    
    
    
    14,648
    
    
    
    10,994
    
    
    
    25,642Operating profit (loss)
    
    $
    1,353
    
    
    $
    864
    
    
    $
    2,217
    
    
    $
    (636
    )
    
    
    1,581Income tax
expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    701Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    880Total assets
    
    $
    1,019,416
    
    
    $
    1,222,358
    
    
    $
    2,241,774
    
    
    $
    984,796
    
    
    $
    3,226,570Three months ended September 30, 2008Net interest income
    
    $
    8,726
    
    
    $
    9,687
    
    
    $
    18,413
    
    
    $
    3,213
    
    
    $
    21,626Provision for loan losses
    
    
    1,175
    
    
    
    1,145
    
    
    
    2,320
    
    
    
    (15
    )
    
    
    2,305Noninterest income
    
    
    1,984
    
    
    
    465
    
    
    
    2,449
    
    
    
    (5,662
    )
    
    
    (3,213
    )Noninterest expense
    
    
    7,834
    
    
    
    5,238
    
    
    
    13,072
    
    
    
    10,836
    
    
    
    23,908Operating profit (loss)
    
    $
    1,701
    
    
    $
    3,769
    
    
    $
    5,470
    
    
    $
    (13,270
    )
    
    
    (7,800
    )Income tax
benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,292
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (6,508
    )Total assets
    
    $
    1,085,022
    
    
    $
    1,168,301
    
    
    $
    2,253,323
    
    
    $
    850,354
    
    
    $
    3,103,677Nine Months ended September 30, 2009Net interest income
    
    $
    25,122
    
    
    $
    28,294
    
    
    $
    53,416
    
    
    $
    14,540
    
    
    $
    67,956Provision for loan losses
    
    
    4,434
    
    
    
    6,499
    
    
    
    10,933
    
    
    
    3,669
    
    
    
    14,602Noninterest income
    
    
    6,518
    
    
    
    1,512
    
    
    
    8,030
    
    
    
    1,042
    
    
    
    9,072Noninterest expense
    
    
    26,162
    
    
    
    17,479
    
    
    
    43,641
    
    
    
    33,861
    
    
    
    77,502Operating profit (loss)
    
    $
    1,044
    
    
    $
    5,828
    
    
    $
    6,872
    
    
    $
    (21,948
    )
    
    
    (15,076
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,686
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (8,390
    )Nine Months ended September 30, 2008Net interest income
    
    $
    24,353
    
    
    $
    28,415
    
    
    $
    52,768
    
    
    $
    8,738
    
    
    $
    61,506Provision for loan losses
    
    
    2,977
    
    
    
    2,663
    
    
    
    5,640
    
    
    
    4,503
    
    
    
    10,143Noninterest income
    
    
    5,587
    
    
    
    1,405
    
    
    
    6,992
    
    
    
    5,401
    
    
    
    12,393Noninterest expense
    
    
    22,928
    
    
    
    16,129
    
    
    
    39,057
    
    
    
    30,389
    
    
    
    69,446Operating profit (loss)
    
    $
    4,035
    
    
    $
    11,028
    
    
    $
    15,063
    
    
    $
    (20,753
    )
    
    
    (5,690
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (719
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (4,971
    )
 18




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##### Table of Contents



Note 7 Net Loss Per Common Share
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Numerator:Net income (loss)
    
    $
    880
    
    
    $
    (6,508
    )
    
    $
    (8,390
    )
    
    $
    (4,971
    )Less preferred dividends and amortization
    
    
    1,167
    
    
    
    
    
    
    
    3,477
    
    
    
    For basic and diluted, net loss applicable
to common stockholders
    
    $
    (287
    )
    
    $
    (6,508
    )
    
    $
    (11,867
    )
    
    $
    (4,971
    )Denominator:For basic, weighted average common shares outstanding
    
    
    10,984
    
    
    
    10,023
    
    
    
    10,373
    
    
    
    10,017Effect of dilutive stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Average common shares outstanding, assuming dilution
    
    
    10,984
    
    
    
    10,023
    
    
    
    10,373
    
    
    
    10,017Basic loss per common share
    
    $
    (0.03
    )
    
    $
    (0.65
    )
    
    $
    (1.14
    )
    
    $
    (0.50
    )Diluted loss per common share
    
    $
    (0.03
    )
    
    $
    (0.65
    )
    
    $
    (1.14
    )
    
    $
    (0.50
    )
   Note 8
 Comprehensive Income (Loss)
  Pre-Tax
    
    
    
    
    
    
    Net ofAmount
    
    
    Income Tax
    
    
    Income Tax(In thousands)Three months ended September 30, 2009Unrealized gain on available for sale securities
    
    $
    3,119
    
    
    $
    (1,154
    )
    
    $
    1,965Less reclassification adjustment for gains realized in net loss
    
    
    (2,121
    )
    
    
    785
    
    
    
    (1,336
    )Unrealized loss on derivatives
    
    
    (219
    )
    
    
    81
    
    
    
    (138
    )Net unrealized gain
    
    $
    779
    
    
    $
    (288
    )
    
    $
    491Three months ended September 30, 2008Unrealized loss on available for sale securities
    
    $
    (13,783
    )
    
    $
    5,102
    
    
    $
    (8,681
    )Less reclassification adjustment for losses realized in net income
    
    
    8,541
    
    
    
    (3,160
    )
    
    
    5,381Net unrealized loss
    
    $
    (5,242
    )
    
    $
    1,942
    
    
    $
    (3,300
    )Nine Months ended September 30, 2009Unrealized loss on available for sale securities
    
    $
    (8,936
    )
    
    $
    3,306
    
    
    $
    (5,630
    )Less reclassification adjustment for OTTI, net of gains, realized
in net loss
    
    
    9,506
    
    
    
    (3,517
    )
    
    
    5,989Unrealized gain on derivatives
    
    
    106
    
    
    
    (39
    )
    
    
    67Net unrealized gain
    
    $
    676
    
    
    $
    (250
    )
    
    $
    426Nine Months ended September 30, 2008Unrealized loss on available for sale securities
    
    $
    (17,503
    )
    
    $
    6,433
    
    
    $
    (11,070
    )Less reclassification adjustment for losses realized in net income
    
    
    7,072
    
    
    
    (2,617
    )
    
    
    4,455Net unrealized loss
    
    $
    (10,431
    )
    
    $
    3,816
    
    
    $
    (6,615
    )
 19




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##### Table of Contents



Note 9  Income Taxes
  Note 10  Stock Incentive Plan
     2009
    
    2008Risk free interest rate
    
    
    2.57
    %
    
    
    3.62
    %Volatility factor
    
    
    55.38
    %
    
    
    34.77
    %Weighted average life of options (in years)
    
    
    5.00
    
    
    
    5.00Dividend yield
    
    
    0.00
    %
    
    
    0.00
    %
  Weighted-Weighted-
    
    
    AverageAverage
    
    
    RemainingExercise
    
    
    Contractual
    
    
    AggregateNumber
    
    
    Price
    
    
    Term
    
    
    Intrinsic ValueUnder option, January 1, 2009
    
    
    848,922
    
    
    $
    29.94Granted
    
    
    104,100
    
    
    
    2.97Forfeited
    
    
    (27,375
    )
    
    
    31.77Under option, September 30, 2009
    
    
    925,647
    
    
    $
    26.85
    
    
    
    5.90
    
    
    $
    Exercisable at end of period
    
    
    625,903
    
    
    $
    31.76
    
    
    
    3.07
    
    
    $
    Weighted-average fair value per option of options granted during the period
    
    $
    1.47
 20




---



##### Table of Contents



Note 11  Fair Value Measurements
  Assets and Liabilities Recorded at Fair Value on a Recurring Basis
  Quoted Prices in
    
    
    
    
    
    
    SignificantFair Value at
    
    
    Active Markets for
    
    
    Significant Other
    
    
    UnobservableSeptember 30,
    
    
    Identical Assets
    
    
    Observable Inputs
    
    
    Inputs2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Available for sale securities
    
    $
    296,882
    
    
    $
    540
    
    
    $
    281,763
    
    
    $
    14,579Derivative assets
    
    
    1,306
    
    
    
    
    
    
    
    1,306
    
    
    
    Total recurring basis measured assets
    
    $
    298,188
    
    
    $
    540
    
    
    $
    283,069
    
    
    $
    14,579Derivative liabilities
    
    $
    1,208
    
    
    $
    
    
    
    $
    1,208
    
    
    $
    Total recurring basis measured liabilities
    
    $
    1,208
    
    
    $
    
    
    
    $
    1,208
    
    
    $
    
 Valuation Techniques  Recurring Basis
 Securities Available for Sale
 21




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##### Table of Contents



Derivative financial instruments
 Changes in Level 3 fair value measurements
  Level 3 assets measured at fair value on a recurring basis
 Available for(in thousands)
    
    Sale SecuritiesBalance at December 31, 2008
    
    $
    18,497Transfer
into level 3 category during the second and third quarters
    
    
    13,978Total gains (losses) (realized and unrealized)Included in earnings  investment security loss
    
    
    (15,150
    )Included in other comprehensive loss
    
    
    (1,554
    )Other changes due to principal payments
    
    
    (1,192
    )Balance at September 30, 2009
    
    $
    14,579Total amount of loss for the period year-to-date included in
earnings attributable to the change in unrealized gains (losses)
related to assets held at September 30, 2009
    
    $
    (15,150
    )
 Assets Recorded at Fair Value on a Nonrecurring Basis
  Quoted PricesinFair Value
    
    
    Active Markets for
    
    
    Significant Other
    
    
    Significantat
    
    
    Identical
    
    
    Observable
    
    
    UnobservableSeptember 30,
    
    
    Assets
    
    
    Inputs
    
    
    Inputs2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Mortgage loans held for sale
    
    $
    58,704
    
    
    $
    
    
    
    $
    58,704
    
    
    $
    Impaired loans, net of specific allowance
    
    
    121,820
    
    
    
    
    
    
    
    
    
    
    
    121,820Other real estate
    
    
    42,259
    
    
    
    
    
    
    
    
    
    
    
    42,259Total nonrecurring basis measured assets
    
    $
    222,783
    
    
    $
    
    
    
    $
    58,704
    
    
    $
    164,079
 Valuation Techniques  Nonrecurring Basis
 Mortgage Loans Held for Sale.
 Impaired Loans.
 22




---



##### Table of Contents



Other Real Estate.
  Tax lien certificates.
 Net loans.
 Deposits.
 Advances
from FHLB.
 Federal funds borrowed and security repurchase agreements.
 Notes payable.
 Subordinated debentures.
 Limitations.
 23




---



##### Table of Contents



September 30, 2009
    
    December 31, 2008Carrying
    
    Fair
    
    Carrying
    
    FairAmount
    
    Value
    
    Amount
    
    Value(In thousands)Financial assets:Cash and due from banks
    
    $
    57,364
    
    
    $
    57,364
    
    
    $
    74,237
    
    
    $
    74,237Interest-bearing deposits in other banks
    
    
    73,976
    
    
    
    73,976
    
    
    
    10,042
    
    
    
    10,042Federal funds sold
    
    
    990
    
    
    
    990
    
    
    
    5,169
    
    
    
    5,169Securities available for sale
    
    
    296,882
    
    
    
    296,882
    
    
    
    347,142
    
    
    
    347,142Tax lien certificates
    
    
    24,700
    
    
    
    24,700
    
    
    
    23,786
    
    
    
    23,786Mortgage loans held for sale
    
    
    58,704
    
    
    
    58,704
    
    
    
    22,040
    
    
    
    22,040Net loans
    
    
    2,400,198
    
    
    
    2,435,159
    
    
    
    2,286,071
    
    
    
    2,374,637Stock in FHLB
    
    
    18,212
    
    
    
    18,212
    
    
    
    21,410
    
    
    
    21,410Accrued interest receivable
    
    
    15,540
    
    
    
    15,540
    
    
    
    14,794
    
    
    
    14,794Derivative assets
    
    
    1,306
    
    
    
    1,306
    
    
    
    1,427
    
    
    
    1,427Financial liabilities:Deposits
    
    
    2,619,961
    
    
    
    2,637,995
    
    
    
    2,342,988
    
    
    
    2,363,270Advances from FHLB
    
    
    218,321
    
    
    
    235,247
    
    
    
    361,324
    
    
    
    382,547Security repurchase agreements
    
    
    1,652
    
    
    
    1,652
    
    
    
    3,563
    
    
    
    3,563Note payable
    
    
    45,801
    
    
    
    45,798
    
    
    
    7,000
    
    
    
    7,000Subordinated debentures
    
    
    60,720
    
    
    
    29,571
    
    
    
    60,884
    
    
    
    46,839Derivative liabilities
    
    
    1,208
    
    
    
    1,208
    
    
    
    1,534
    
    
    
    1,534
 Note 12  Stockholders Equity
  24




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Basis of Presentation
   Overview
       25




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##### Table of Contents



Managements Response to Current Economic Environment:
 Changes in Lending Policy
  
    
    Credit Approval:Today, we have in place a centralized underwriting process for each of our two states, under
the supervision of a Senior Credit Officer assigned to that state. Each Senior Credit
Officer is responsible for the maintenance of loan underwriting standards within his state,
including loan approvals up to a certain limit through a State Loan Committee. Credits with a
total exposure exceeding $10 million are reviewed and approved by the Executive Loan
Committee and the Board Loan and Investment Committee as needed.
    
    Credit Administration and Loan Review:These functions operate on a centralized basis, and are responsible for reviewing for policy
compliance and reporting all loans that are underwritten at the state level to executive
management. In recent months, in response to the current economic conditions, we have
tightened our underwriting standards. We are requiring more relationship-driven deals, where
we are the primary, and in many cases, the only banking relationship for these prospective
customers. All of these changes are intended to further strengthen our position and mitigate
the risks associated with the current economic environment. In addition, we have established
concentration guidelines for each major lending category, as well as
sub-limit within each of these broad categories to provide risk rated limitations on our lending activities, both by
nature of collateral and by geography.
    
    Problem Asset Management:Each significant problem asset is assigned to a senior officer for workout. As of September
30, 2009, each of the 27 largest problem loans or foreclosed properties in a workout status
is assigned to one of the four top officers of our company, reflecting our belief that in
this manner we can bring the right combination of experience, short decision making lines of
communication, and executive focus on reducing our totals of these assets in the least costly
manner. This encompasses essentially all problem relationships of $1 million or more at
Superior.
 Loan Trends.
   26




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##### Table of Contents



Liquidity
and Capital
   Recent Accounting Pronouncements
  
    
    Accounting Standards Codification (ASC) 820-10, Determining Fair Value When the Volume
and Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly (ASC 820-10") provides guidelines for making
fair value measurements more consistent by emphasizing that even if there has been a
significant decrease in the volume and level of activity for the asset or liability and
regardless of the valuation technique used, the objective of a fair value measurement
remains the same. Fair value is the price that would be received in a sale of an asset or
paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or
distressed sale), between market participants at the measurement date under current market
conditions.
    
    ASC 320-10, Recognition and Presentation of Other-than-temporary impairments (ASC
320-10)provides additional guidance designed to create greater clarity and consistency in
accounting for and presenting impairment losses on securities. It amends OTTI impairment
guidance for debt securities to make the guidance more operational and to improve the
presentation and disclosure of OTTI on debt and equity securities in the financial
statements. It does not amend existing recognition and measurement guidance related to OTTI
of equity securities.
    
    ASC 825-10 and ASC 270-10, Interim Disclosures about Fair Value of Financial Instruments
(ASC 825-10 and ASC 270-10)enhance consistency in financial reporting by increasing the
frequency of fair value disclosures.
  27




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##### Table of Contents



ASC 815-10, Disclosures About Derivative Instruments and Hedging Activities (ASC 815-10),
  Results of Operations
  Three Months
    
    Nine MonthsEnded September 30,
    
    Ended September 30,2009
    
    2008
    
    2009
    
    2008(Dollars in thousands, except per share data)Net (loss) income
    
    $
    880
    
    
    $
    (6,508
    )
    
    $
    (8,390
    )
    
    $
    (4,971
    )Net (loss) income applicable to common shareholders
    
    
    (287
    )
    
    
    (6,508
    )
    
    
    (11,867
    )
    
    
    (4,971
    )Net (loss) income per common share (diluted)
    
    
    (0.03
    )
    
    
    (0.65
    )
    
    
    (1.14
    )
    
    
    (0.50
    )Net interest margin
    
    
    3.36
    %
    
    
    3.33
    %
    
    
    3.23
    %
    
    
    3.26
    %Net interest spread
    
    
    3.17
    %
    
    
    3.16
    %
    
    
    3.04
    %
    
    
    3.03
    %Return on average assets
    
    
    0.11
    %
    
    
    (0.85
    )%
    
    
    (0.36
    )%
    
    
    (0.22
    )%Return on average tangible assets
    
    
    0.11
    %
    
    
    (0.90
    )%
    
    
    (0.36
    )%
    
    
    (0.24
    )%Return on average stockholders equity
    
    
    1.44
    %
    
    
    (7.44
    )%
    
    
    (4.54
    )%
    
    
    (1.90
    )%Return on average tangible equity
    
    
    1.55
    %
    
    
    (15.88
    )%
    
    
    (4.93
    )%
    
    
    (4.04
    )%Common book value per share
    
    $
    14.82
    
    
    $
    33.97
    
    
    $
    14.82
    
    
    $
    33.97Tangible common book value per share
    
    
    13.29
    
    
    
    15.64
    
    
    
    13.29
    
    
    
    15.64
  28




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##### Table of Contents



Net Interest Income.
 Increase (Decrease) inThird quarter 2009 vs 2008
    
    
    First Nine Months of 2009 vs 2008Average
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    Rate(Dollars in thousands)ASSETSInterest-earning assets:Loans, net of unearned income
    
    $
    285,543
    
    
    $
    119
    
    
    
    (0.75
    )%
    
    $
    304,237
    
    
    $
    (3,024
    )
    
    
    (1.01
    )%Investment securitiesTaxable
    
    
    (53,007
    )
    
    
    (744
    )
    
    
    (0.07
    )
    
    
    (27,272
    )
    
    
    (1,154
    )
    
    
    (0.03
    )Tax-exempt
    
    
    802
    
    
    
    4
    
    
    
    (0.10
    )
    
    
    449
    
    
    
    6
    
    
    
    (0.04
    )Total investment
securities
    
    
    (52,205
    )
    
    
    (740
    )
    
    
    (0.05
    )
    
    
    (26,823
    )
    
    
    (1,148
    )
    
    
    (0.02
    )Federal funds sold
    
    
    (1,159
    )
    
    
    (16
    )
    
    
    (2.04
    )
    
    
    (1,124
    )
    
    
    (106
    )
    
    
    (2.61
    )Other investments
    
    
    11,149
    
    
    
    (192
    )
    
    
    (1.94
    )
    
    
    14,994
    
    
    
    (750
    )
    
    
    (2.77
    )Total
interest-earning assets
    
    $
    243,328
    
    
    
    (829
    )
    
    
    (0.68
    )
    
    $
    291,284
    
    
    
    (5,028
    )
    
    
    (0.91
    )Interest-bearing liabilities:Demand deposits
    
    $
    38,202
    
    
    
    (1,161
    )
    
    
    (0.84
    )
    
    $
    4,621
    
    
    
    (5,651
    )
    
    
    (1.17
    )Savings deposits
    
    
    95,383
    
    
    
    (128
    )
    
    
    (1.11
    )
    
    
    128,747
    
    
    
    1,079
    
    
    
    (0.55
    )Time deposits
    
    
    155,025
    
    
    
    (1,406
    )
    
    
    (0.82
    )
    
    
    145,022
    
    
    
    (6,083
    )
    
    
    (1.02
    )Other borrowings
    
    
    (116,967
    )
    
    
    (671
    )
    
    
    0.42
    
    
    
    (40,736
    )
    
    
    (1,540
    )
    
    
    (0.20
    )Subordinated debentures
    
    
    6,083
    
    
    
    248
    
    
    
    0.92
    
    
    
    6,800
    
    
    
    715
    
    
    
    0.78Total
interest -bearing liabilities
    
    $
    177,726
    
    
    
    (3,118
    )
    
    
    (0.69
    )
    
    $
    244,454
    
    
    
    (11,480
    )
    
    
    (0.92
    )Net interest income/net interest
spread
    
    
    
    
    
    
    2,289
    
    
    
    (0.01
    )%
    
    
    
    
    
    
    6,452
    
    
    
    0.01
    %Net yield on earning assets
    
    
    
    
    
    
    
    
    
    
    (0.03
    )%
    
    
    
    
    
    
    
    
    
    
    (0.03
    )%Taxable equivalent adjustment:Investment securities
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    2Net interest income
    
    
    
    
    
    $
    2,287
    
    
    
    
    
    
    
    
    
    
    $
    6,450
 29




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##### Table of Contents



Three Months Ended September 30,2009
    
    
    2008Average
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    Rate(Dollars in thousands)ASSETSInterest-earning assets:Loans, net of unearned income (1)
    
    $
    2,487,262
    
    
    $
    36,783
    
    
    
    5.87
    %
    
    $
    2,201,719
    
    
    $
    36,664
    
    
    
    6.62
    %Investment securitiesTaxable
    
    
    256,194
    
    
    
    3,362
    
    
    
    5.21
    
    
    
    309,201
    
    
    
    4,106
    
    
    
    5.28Tax-exempt (2)
    
    
    41,384
    
    
    
    655
    
    
    
    6.28
    
    
    
    40,582
    
    
    
    651
    
    
    
    6.38Total investment securities
    
    
    297,578
    
    
    
    4,017
    
    
    
    5.36
    
    
    
    349,783
    
    
    
    4,757
    
    
    
    5.41Federal funds sold
    
    
    1,849
    
    
    
    1
    
    
    
    0.21
    
    
    
    3,008
    
    
    
    17
    
    
    
    2.25Other investments
    
    
    66,766
    
    
    
    471
    
    
    
    2.80
    
    
    
    55,617
    
    
    
    663
    
    
    
    4.74Total interest -earning assets
    
    
    2,853,455
    
    
    
    41,272
    
    
    
    5.74
    
    
    
    2,610,127
    
    
    
    42,101
    
    
    
    6.42Noninterest-earning assets:Cash and due from banks
    
    
    61,211
    
    
    
    
    
    
    
    
    
    
    
    64,435Premises and equipment
    
    
    105,327
    
    
    
    
    
    
    
    
    
    
    
    104,032Accrued interest and other assets
    
    
    171,092
    
    
    
    
    
    
    
    
    
    
    
    301,776Allowance for loan losses
    
    
    (33,780
    )
    
    
    
    
    
    
    
    
    
    
    (27,302
    )Total assets
    
    $
    3,157,305
    
    
    
    
    
    
    
    
    
    
    $
    3,053,068LIABILITIES AND STOCKHOLDERS EQUITYInterest-bearing liabilities:Demand deposits
    
    $
    649,622
    
    
    $
    2,129
    
    
    
    1.30
    %
    
    $
    611,420
    
    
    $
    3,290
    
    
    
    2.14
    %Savings deposits
    
    
    257,163
    
    
    
    872
    
    
    
    1.35
    
    
    
    161,780
    
    
    
    1,000
    
    
    
    2.46Time deposits
    
    
    1,400,972
    
    
    
    10,314
    
    
    
    2.92
    
    
    
    1,245,947
    
    
    
    11,720
    
    
    
    3.74Other borrowings
    
    
    279,528
    
    
    
    2,619
    
    
    
    3.72
    
    
    
    396,495
    
    
    
    3,290
    
    
    
    3.30Subordinated debentures
    
    
    60,743
    
    
    
    1,202
    
    
    
    7.86
    
    
    
    54,660
    
    
    
    954
    
    
    
    6.94Total interest -bearing liabilities
    
    
    2,648,028
    
    
    
    17,136
    
    
    
    2.57
    
    
    
    2,470,302
    
    
    
    20,254
    
    
    
    3.26Noninterest-bearing liabilities:Demand deposits
    
    
    251,696
    
    
    
    
    
    
    
    
    
    
    
    218,861Accrued interest and other liabilities
    
    
    14,391
    
    
    
    
    
    
    
    
    
    
    
    15,945Stockholders equity
    
    
    243,190
    
    
    
    
    
    
    
    
    
    
    
    347,960Total
liabilities and stockholders equity
    
    $
    3,157,305
    
    
    
    
    
    
    
    
    
    
    $
    3,053,068Net interest income/net interest spread
    
    
    
    
    
    
    24,136
    
    
    
    3.17
    %
    
    
    
    
    
    
    21,847
    
    
    
    3.16
    %Net yield on earning assets
    
    
    
    
    
    
    
    
    
    
    3.36
    %
    
    
    
    
    
    
    
    
    
    
    3.33
    %Taxable equivalent adjustment:Investment securities (2)
    
    
    
    
    
    
    223
    
    
    
    
    
    
    
    
    
    
    
    221Net interest income
    
    
    
    
    
    $
    23,913
    
    
    
    
    
    
    
    
    
    
    $
    21,626
 
 (1)
    
    Nonaccrual loans are included in loans, net of unearned income. No adjustment has been made
for these loans in the calculation of yields.(2)
    
    Interest income and yields are presented on a fully taxable equivalent basis using a tax rate
of 34%. 30




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##### Table of Contents



Three Months Ended September 30,2009 vs. 2008 (1)Increase
    
    
    Changes Due To(Decrease)
    
    
    Rate
    
    
    Volume(Dollars in thousands)Increase (decrease) in:Income from interest-earning assets:Interest and fees on loans
    
    $
    119
    
    
    $
    (4,388
    )
    
    $
    4,507Interest on securitiesTaxable
    
    
    (744
    )
    
    
    (53
    )
    
    
    (691
    )Tax-exempt
    
    
    4
    
    
    
    (10
    )
    
    
    14Interest on federal funds
    
    
    (16
    )
    
    
    (11
    )
    
    
    (5
    )Interest on other investments
    
    
    (192
    )
    
    
    (308
    )
    
    
    116Total interest income
    
    
    (829
    )
    
    
    (4,770
    )
    
    
    3,941Expense from interest-bearing liabilities:Interest on demand deposits
    
    
    (1,161
    )
    
    
    (1,357
    )
    
    
    196Interest on savings deposits
    
    
    (128
    )
    
    
    (568
    )
    
    
    440Interest on time deposits
    
    
    (1,406
    )
    
    
    (2,761
    )
    
    
    1,355Interest on other borrowings
    
    
    (671
    )
    
    
    384
    
    
    
    (1,055
    )Interest on subordinated debentures
    
    
    248
    
    
    
    134
    
    
    
    114Total interest expense
    
    
    (3,118
    )
    
    
    (4,168
    )
    
    
    1,050Net interest income
    
    $
    2,289
    
    
    $
    (602
    )
    
    $
    2,891
 
 (1)
    
    The change in interest due to both rate and volume has been allocated to rate and volume
changes in proportion to the relationship of the absolute dollar amounts of the changes in
each. 31




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##### Table of Contents



Nine Months Ended September 30,2009
    
    
    2008Average
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    Rate(Dollars in thousands)ASSETSInterest-earning assets:Loans, net of unearned income (1)
    
    $
    2,446,491
    
    
    $
    107,693
    
    
    
    5.89
    %
    
    $
    2,142,254
    
    
    $
    110,717
    
    
    
    6.90
    %Investment securities:Taxable
    
    
    282,666
    
    
    
    11,148
    
    
    
    5.27
    
    
    
    309,938
    
    
    
    12,302
    
    
    
    5.30Tax-exempt (2)
    
    
    41,062
    
    
    
    1,962
    
    
    
    6.39
    
    
    
    40,613
    
    
    
    1,956
    
    
    
    6.43Total investment securities
    
    
    323,728
    
    
    
    13,110
    
    
    
    5.41
    
    
    
    350,551
    
    
    
    14,258
    
    
    
    5.43Federal funds sold
    
    
    4,176
    
    
    
    8
    
    
    
    0.26
    
    
    
    5,300
    
    
    
    114
    
    
    
    2.87Other investments
    
    
    65,422
    
    
    
    1,289
    
    
    
    2.63
    
    
    
    50,428
    
    
    
    2,039
    
    
    
    5.40Total interest -earning assets
    
    
    2,839,817
    
    
    
    122,100
    
    
    
    5.75
    
    
    
    2,548,533
    
    
    
    127,128
    
    
    
    6.66Noninterest-earning assets:Cash and due from banks
    
    
    71,085
    
    
    
    
    
    
    
    
    
    
    
    60,953Premises and equipment
    
    
    105,309
    
    
    
    
    
    
    
    
    
    
    
    103,370Accrued interest and other assets
    
    
    161,194
    
    
    
    
    
    
    
    
    
    
    
    292,824Allowance for loan losses
    
    
    (30,948
    )
    
    
    
    
    
    
    
    
    
    
    (24,749
    )Total assets
    
    $
    3,146,457
    
    
    
    
    
    
    
    
    
    
    $
    2,980,931LIABILITIES AND STOCKHOLDERS EQUITYInterest-bearing liabilities:Demand deposits
    
    $
    654,703
    
    
    $
    6,495
    
    
    
    1.33
    %
    
    $
    650,082
    
    
    $
    12,146
    
    
    
    2.50
    %Savings deposits
    
    
    230,969
    
    
    
    2,697
    
    
    
    1.56
    
    
    
    102,222
    
    
    
    1,618
    
    
    
    2.11Time deposits
    
    
    1,387,712
    
    
    
    33,125
    
    
    
    3.19
    
    
    
    1,242,690
    
    
    
    39,208
    
    
    
    4.21Other borrowings
    
    
    301,595
    
    
    
    7,558
    
    
    
    3.35
    
    
    
    342,331
    
    
    
    9,098
    
    
    
    3.55Subordinated debentures
    
    
    60,796
    
    
    
    3,602
    
    
    
    7.92
    
    
    
    53,996
    
    
    
    2,887
    
    
    
    7.14Total interest -bearing liabilities
    
    
    2,635,775
    
    
    
    53,477
    
    
    
    2.71
    
    
    
    2,391,321
    
    
    
    64,957
    
    
    
    3.63Noninterest-bearing liabilities:Demand deposits
    
    
    243,094
    
    
    
    
    
    
    
    
    
    
    
    218,419Accrued interest and other liabilities
    
    
    18,715
    
    
    
    
    
    
    
    
    
    
    
    20,845Stockholders equity
    
    
    248,873
    
    
    
    
    
    
    
    
    
    
    
    350,346Total liabilities and stockholders equity
    
    $
    3,146,457
    
    
    
    
    
    
    
    
    
    
    $
    2,980,931Net interest income/net interest spread
    
    
    
    
    
    
    68,623
    
    
    
    3.04
    %
    
    
    
    
    
    
    62,171
    
    
    
    3.03
    %Net yield on earning assets
    
    
    
    
    
    
    
    
    
    
    3.23
    %
    
    
    
    
    
    
    
    
    
    
    3.26
    %Taxable equivalent adjustment:Investment securities (2)
    
    
    
    
    
    
    667
    
    
    
    
    
    
    
    
    
    
    
    665Net interest income
    
    
    
    
    
    $
    67,956
    
    
    
    
    
    
    
    
    
    
    $
    61,506
 
 (1)
    
    Nonaccrual loans are included in loans, net of unearned income. No adjustment has been made
for these loans in the calculation of yields.(2)
    
    Interest income and yields are presented on a fully taxable equivalent basis using a tax rate
of 34%. 32




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##### Table of Contents



Nine Months Ended September 30,2009 vs. 2008 (1)Increase
    
    
    Changes Due To(Decrease)
    
    
    Rate
    
    
    Volume(Dollars in thousands)Increase (decrease) in:Income from interest-earning assets:Interest and fees on loans
    
    $
    (3,024
    )
    
    $
    (17,473
    )
    
    $
    14,449Interest on securities:Taxable
    
    
    (1,154
    )
    
    
    (70
    )
    
    
    (1,084
    )Tax-exempt
    
    
    6
    
    
    
    (13
    )
    
    
    19Interest on federal funds
    
    
    (106
    )
    
    
    (86
    )
    
    
    (20
    )Interest on other investments
    
    
    (750
    )
    
    
    (1,242
    )
    
    
    492Total interest income
    
    
    (5,028
    )
    
    
    (18,884
    )
    
    
    13,856Expense from interest-bearing
liabilities:Interest on demand deposits
    
    
    (5,651
    )
    
    
    (5,737
    )
    
    
    86Interest on savings deposits
    
    
    1,079
    
    
    
    (512
    )
    
    
    1,591Interest on time deposits
    
    
    (6,083
    )
    
    
    (10,270
    )
    
    
    4,187Interest on other borrowings
    
    
    (1,540
    )
    
    
    (495
    )
    
    
    (1,045
    )Interest on subordinated debentures
    
    
    715
    
    
    
    332
    
    
    
    383Total interest expense
    
    
    (11,480
    )
    
    
    (16,682
    )
    
    
    5,202Net interest income
    
    $
    6,452
    
    
    $
    (2,202
    )
    
    $
    8,654
 
 (1)
    
    The change in interest due to both rate and volume has been allocated to rate and volume
changes in proportion to the relationship of the absolute dollar amounts of the changes in
each. Noninterest income
 Three Months Ended September 30,2009
    
    
    2008
    
    

%
Change(Dollars in thousands)Service charges and fees on deposits
    
    $
    2,595
    
    
    $
    2,425
    
    
    
    7.01
    %Mortgage banking income
    
    
    1,506
    
    
    
    820
    
    
    
    83.7Investment
securities gain (loss)
    
    
    2,121
    
    
    
    (8,541
    )
    
    
    124.8Change in fair value of derivatives
    
    
    435
    
    
    
    141
    
    
    
    208.5Increase in cash surrender value of life insurance
    
    
    568
    
    
    
    583
    
    
    
    (2.6
    )Other noninterest income
    
    
    1,254
    
    
    
    1,359
    
    
    
    (7.7
    )Total
    
    $
    8,479
    
    
    $
    (3,213
    )
    
    
    363.9
    %
 Nine Months Ended September 30,2009
    
    
    2008
    
    

%
Change(Dollars in thousands)Service charges and fees on deposits
    
    $
    7,506
    
    
    $
    6,721
    
    
    
    11.7
    %Mortgage banking income
    
    
    5,468
    
    
    
    3,117
    
    
    
    75.4Investment securities (loss) gain
    
    
    (9,506
    )
    
    
    (7,072
    )
    
    
    (34.4
    )Change in fair value of derivatives
    
    
    170
    
    
    
    773
    
    
    
    (78.0
    )Increase in cash surrender value of life insurance
    
    
    1,623
    
    
    
    1,689
    
    
    
    (3.9
    )Gain on extinguishment of liabilities
    
    
    
    
    
    
    2,918
    
    
    NCMOther noninterest income
    
    
    3,811
    
    
    
    4,247
    
    
    
    (10.3
    )Total
    
    $
    9,072
    
    
    $
    12,393
    
    
    
    (26.8
    )%
 
 NCM  not considered meaningful.  33




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##### Table of Contents



Noninterest expenses
 Three Months Ended September 30,2009
    
    
    2008
    
    

%
Change(Dollars in thousands)Noninterest ExpensesSalaries and employee benefits
    
    $
    12,234
    
    
    $
    12,379
    
    
    
    (1.17
    )%Occupancy, furniture and equipment expense
    
    
    4,478
    
    
    
    4,434
    
    
    
    0.99Amortization of core deposit intangibles
    
    
    985
    
    
    
    896
    
    
    
    9.93FDIC assessment
    
    
    921
    
    
    
    433
    
    
    
    112.70Foreclosure losses
    
    
    1,337
    
    
    
    190
    
    
    NCMProfessional fees
    
    
    815
    
    
    
    756
    
    
    
    7.80Insurance expense
    
    
    682
    
    
    
    605
    
    
    
    12.73Postage, stationery and supplies
    
    
    777
    
    
    
    663
    
    
    
    17.19Communications expense
    
    
    760
    
    
    
    796
    
    
    
    (4.52
    )Advertising expense
    
    
    615
    
    
    
    938
    
    
    
    (34.43
    )Other operating expense
    
    
    2,038
    
    
    
    1,818
    
    
    
    12.10Total
    
    $
    25,642
    
    
    $
    23,908
    
    
    
    7.25
    %
 
 NCM  not considered meaningful. Nine Months Ended September 30,2009
    
    
    2008
    
    

%
Change(Dollars in thousands)Noninterest ExpensesSalaries and employee benefits
    
    $
    36,976
    
    
    $
    36,577
    
    
    
    1.09
    %Occupancy, furniture and equipment expense
    
    
    13,397
    
    
    
    12,614
    
    
    
    6.21Amortization of core deposit intangibles
    
    
    2,956
    
    
    
    2,688
    
    
    
    9.97FDIC assessment
    
    
    3,310
    
    
    
    657
    
    
    NCMForeclosure losses
    
    
    3,656
    
    
    
    552
    
    
    NCMProfessional fees
    
    
    2,607
    
    
    
    1,893
    
    
    
    37.72Insurance expense
    
    
    1,903
    
    
    
    1,781
    
    
    
    6.85Postage, stationery and supplies
    
    
    2,264
    
    
    
    2,192
    
    
    
    3.28Communications expense
    
    
    2,322
    
    
    
    2,201
    
    
    
    5.50Advertising expense
    
    
    1,952
    
    
    
    2,749
    
    
    
    (28.99
    )Other operating expense
    
    
    6,159
    
    
    
    5,542
    
    
    
    11.13Total
    
    $
    77,502
    
    
    $
    69,446
    
    
    
    11.60
    %
  Income tax expense (benefit)
  34




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##### Table of Contents




    
    During the period from 2006-2008, the Company has generated a financial taxable income
level (excluding certain tax exempt income and goodwill impairments) of $2.5 million.
Including the year-to-date loss in 2009, the financial taxable loss for this period is
approximately $(15.5) million.
    
    Management considers several significant components of that loss to be specific one-time
events (specifically, losses taken for securities that were other than temporarily
impaired included writedowns on preferred stock in Fannie Mae and Freddie Mac totaling
approximately $8.0 million and losses on trust preferred securities and private label
mortgage backed securities totaling $17.0 million). Management has determined that these
securities are not representative of the nature of risk that we will undertake in the
future, and therefore believes that these losses are unrepresentative of our current or
future risk profile. Absent these losses, financial taxable income during the period from
January 1, 2006 through September 30, 2009 would have been $9.5 million.
    
    During the fourth quarter of 2009, management intends to
restructure certain portions of our agency and municipal securities
portfolio to reduce capital requirements and to lessen the generation of tax exempt income.
This latter objective will tend to increase our effective tax rate, leading to increased
utilization of the deferred tax asset on a current basis.
    
    Additionally, as part of its annual budgeting process, management evaluates our
projected earnings in relation to the expiration dates of all tax carryforward items to
determine if a valuation allowance is needed for the DTA.
    
    If the current credit cycle continues for an extended period, it has the potential to
affect our ability to generate future taxable income in the near term. An extended period
of losses could result in our establishing a valuation allowance against our deferred tax
asset. At this point our current federal net operating loss carryforwards and tax credit
carryforwards are not expected to begin expiring until the year 2018 with final expiration
in the years 2023 to 2028. The establishment of a valuation allowance would be recognized as
a charge against income through the provision for income taxes, and could affect our
ability to recognize tax benefits on future losses, if any.
 Provision for Loan Losses and Loan Charge-offs.
 35




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##### Table of Contents



Three Months EndedSeptember 30,
    
    
    September 30,
    
    
    June 30,
    
    
    December 31,2009
    
    
    2008
    
    
    2009
    
    
    2008(Dollars in thousands)Allowance for loan losses at beginning of period
    
    $
    33,504
    
    
    $
    27,243
    
    
    $
    29,870
    
    
    $
    27,670Provision for loan losses
    
    
    5,169
    
    
    
    2,305
    
    
    
    5,982
    
    
    
    2,969Total charge-offs
    
    
    4,546
    
    
    
    2,247
    
    
    
    2,513
    
    
    
    1,971Total recoveries
    
    
    (209
    )
    
    
    (369
    )
    
    
    (165
    )
    
    
    (182
    )Net charge-offs
    
    
    4,336
    
    
    
    1,878
    
    
    
    2,348
    
    
    
    1,789Allowance for loan losses at end of period
    
    $
    34,336
    
    
    $
    27,670
    
    
    $
    33,504
    
    
    $
    28,850Total loans, net of unearned income
    
    $
    2,434,534
    
    
    $
    2,219,041
    
    
    $
    2,398,471
    
    
    $
    2,314,921Ratio: Allowance for loan losses to total loans, net
of unearned income
    
    
    1.41
    %
    
    
    1.25
    %
    
    
    1.40
    %
    
    
    1.25
    %
 For the Nine-month PeriodEnded
    
    
    Year EndedSeptember 30,
    
    
    September 30,
    
    
    December 31,2009
    
    
    2008
    
    
    2008Allowance for loan losses at beginning of period
    
    $
    28,850
    
    
    $
    22,868
    
    
    $
    22,868Provision for loan losses
    
    
    14,602
    
    
    
    10,143
    
    
    
    13,112Total charge-offs
    
    
    9,868
    
    
    
    6,473
    
    
    
    8,444Total recoveries
    
    
    (752
    )
    
    
    (1,132
    )
    
    
    (1,314
    )Net charge-offs
    
    
    9,115
    
    
    
    5,341
    
    
    
    7,130Allowance for loan losses at end of period
    
    $
    34,336
    
    
    $
    27,670
    
    
    $
    28,850Total loans, net of unearned income
    
    $
    2,434,534
    
    
    $
    2,219,041
    
    
    $
    2,314,921Ratio: Allowance for loan losses to total loans, net of unearned income
    
    
    1.41
    %
    
    
    1.25
    %
    
    
    1.25
    %
  Results of Segment Operations
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In thousands)Alabama region
    
    $
    1,353
    
    
    $
    1,701
    
    
    $
    1,044
    
    
    $
    4,035Florida region
    
    
    864
    
    
    
    3,769
    
    
    
    5,828
    
    
    
    11,028Administrative and other
    
    
    (636
    )
    
    
    (13,270
    )
    
    
    (21,948
    )
    
    
    (20,753
    )Income tax expense (benefit)
    
    
    701
    
    
    
    (1,292
    )
    
    
    (6,686
    )
    
    
    (719
    )Consolidated net income (loss)
    
    $
    880
    
    
    $
    (6,508
    )
    
    $
    (8,390
    )
    
    $
    (4,971
    )
 Alabama Region.
    36




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##### Table of Contents



Florida Region.
     Fair Value Measurements
   37




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##### Table of Contents



Financial Condition
  Short-term liquid assets
 Investment
Securities
    38




---



##### Table of Contents



Investment Portfolio
 Available for SaleSeptember 30,
    
    
    December 31,
    
    
    Percent2009
    
    
    2008
    
    
    Change(Dollars in thousands)Investment securities available for sale:U.S. agency securities
    
    $
    54,136
    
    
    $
    3,843
    
    
    NCMMortgage-backed securities (MBS):U.S. Agency MBS  residential
    
    
    169,991
    
    
    
    237,508
    
    
    
    (28.4
    )U.S. Agency MBS  collateralized mortgage obligation (CMO)
    
    
    13,185
    
    
    
    16,186
    
    
    
    (18.5
    )Private-label  CMO
    
    
    17,179
    
    
    
    26,430
    
    
    
    (35.0
    )Total MBS
    
    
    200,355
    
    
    
    280,124
    
    
    
    (28.5
    )State, county and municipal securities
    
    
    32,801
    
    
    
    40,622
    
    
    
    (19.3
    )Corporate obligations:Corporate debt
    
    
    4,000
    
    
    
    5,746
    
    
    
    (30.4
    )Pooled trust preferred securities
    
    
    3,814
    
    
    
    9,939
    
    
    
    (61.6
    )Single issue trust preferred securities
    
    
    1,236
    
    
    
    6,704
    
    
    
    (81.6
    )Total corporate obligations
    
    
    9,050
    
    
    
    22,389
    
    
    
    (59.6
    )Equity securities
    
    
    540
    
    
    
    164
    
    
    NCMTotal investment securities available for sale
    
    $
    296,882
    
    
    $
    347,142
    
    
    
    (14.5
    )%
 
 NCM  not considered meaningful. 39




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##### Table of Contents



September 30, 2009Less Than 12 Months
    
    
    More Than 12 Months
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedFair Value
    
    
    Losses (1)
    
    
    Fair Value
    
    
    Losses (1)
    
    
    Fair Value
    
    
    Losses (1)(In thousands)Temporarily ImpairedU.S. Agency securities
    
    $
    39,367
    
    
    $
    1,072
    
    
    $
    
    
    
    $
    
    
    
    $
    39,367
    
    
    $
    1,072Mortgage-backed securities:U.S. Agency MBS  residential
    
    
    6,301
    
    
    
    12
    
    
    
    243
    
    
    
    7
    
    
    
    6,544
    
    
    
    19U.S. Agency MBS  CMO
    
    
    6,132
    
    
    
    63
    
    
    
    
    
    
    
    
    
    
    
    6,132
    
    
    
    63Private-label  CMO
    
    
    132
    
    
    
    4
    
    
    
    12,804
    
    
    
    2,063
    
    
    
    12,936
    
    
    
    2,067Total MBS
    
    
    12,565
    
    
    
    79
    
    
    
    13,047
    
    
    
    2,070
    
    
    
    25,612
    
    
    
    2,149State, county and municipal
securities
    
    
    613
    
    
    
    16
    
    
    
    1,368
    
    
    
    73
    
    
    
    1,981
    
    
    
    89Corporate obligations:Corporate debt
    
    
    
    
    
    
    
    
    
    
    4,000
    
    
    
    156
    
    
    
    4,000
    
    
    
    156Pooled trust preferred securities
    
    
    
    
    
    
    
    
    
    
    1,046
    
    
    
    1,103
    
    
    
    1,046
    
    
    
    1,103Single issue trust preferred
securities
    
    
    
    
    
    
    
    
    
    
    1,236
    
    
    
    3,764
    
    
    
    1,236
    
    
    
    3,764Total corporate obligations
    
    
    
    
    
    
    
    
    
    
    6,282
    
    
    
    5,023
    
    
    
    6,282
    
    
    
    5,023Equity securities
    
    
    
    
    
    
    
    
    
    
    223
    
    
    
    61
    
    
    
    223
    
    
    
    61Total temporarily impaired
securities
    
    
    52,545
    
    
    
    1,167
    
    
    
    20,920
    
    
    
    7,227
    
    
    
    73,465
    
    
    
    8,394Other-than-temporarily ImpairedMortgage-backed securities:Private-label  CMO
    
    
    
    
    
    
    
    
    
    
    3,775
    
    
    
    1,832
    
    
    
    3,775
    
    
    
    1,832Corporate obligations:Pooled trust preferred securities
    
    
    
    
    
    
    
    
    
    
    2,768
    
    
    
    3,797
    
    
    
    2,768
    
    
    
    3,797Total OTTI securities
    
    
    
    
    
    
    
    
    
    
    6,543
    
    
    
    5,629
    
    
    
    6,543
    
    
    
    5,629Total temporarily and
other-than-temporarily impaired
    
    $
    52,545
    
    
    $
    1,167
    
    
    $
    27,463
    
    
    $
    12,856
    
    
    $
    80,008
    
    
    $
    14,023
 
 (1)
    
    - Unrealized losses are included in other comprehensive income (loss), net of unrealized
gains and applicable income taxes. Other-Than-Temporary-Impairment
 ASC
320-10 guidance.
   40




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##### Table of Contents



Credit SupportRating
    
    
    
    
    
    Coverage
    
    
    UnrealizedMoody/Fitch
    
    Count
    
    
    Ratios (1)
    
    
    LossA1/NR
    
    
    1
    
    
    
    3.47
    
    
    $
    (105
    )Aaa/NR
    
    
    1
    
    
    
    4.45
    
    
    
    (22
    )Aaa/NR
    
    
    1
    
    
    
    8.64
    
    
    
    (4
    )NR/AAA
    
    
    1
    
    
    
    8.86
    
    
    
    (441
    )NR/AA
    
    
    1
    
    
    
    2.78
    
    
    
    (468
    )NR/BBB
    
    
    1
    
    
    
    3.58
    
    
    
    (143
    )Baa2/AA
    
    
    1
    
    
    
    N/A
    
    
    
    (688
    )B2/NR
    
    
    1
    
    
    
    4.16
    
    
    
    (196
    )Caa1/CCC(2)
    
    
    1
    
    
    
    1.63
    
    
    
    (1,762
    )CA/NR (2)
    
    
    1
    
    
    
    0
    
    
    
    (17
    )NR/C (2)
    
    
    2
    
    
    
    0.38 - 0.60
    
    
    
    57Total
    
    
    12
    
    
    
    
    
    
    $
    (3,789
    )
 
    41




---



##### Table of Contents



Life-to-DateOther-than-temporary Impairment (OTTI)Credit PortionDiscount
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ActualMargin
    
    
    
    
    
    
    Cumulative
    
    
    Average
    
    
    60+ DaysSecurity
    
    Price (%)
    
    
    (Basis Points)
    
    
    Yield
    
    
    Default
    
    
    Severity
    
    
    Delinquent
    
    
    2008
    
    
    2009
    
    
    Other
    
    
    TotalCMO 1
    
    
    21.60
    
    
    
    1673
    
    
    
    18.00
    %
    
    
    56.56
    %
    
    
    50.00
    %
    
    
    28.01
    %
    
    $
    (599
    )
    
    $
    (1,231
    )
    
    $
    110
    
    
    $
    (1,720
    )CMO 2
    
    
    4.54
    
    
    
    1772
    
    
    
    18.00
    %
    
    
    57.38
    %
    
    
    60.00
    %
    
    
    29.80
    %
    
    
    (492
    )
    
    
    (1,382
    )
    
    
    (17
    )
    
    
    (1,891
    )CMO 3
    
    
    23.42
    
    
    
    1573
    
    
    
    17.00
    %
    
    
    45.27
    %
    
    
    45.00
    %
    
    
    20.42
    %
    
    
    (803
    )
    
    
    (1,558
    )
    
    
    (53
    )
    
    
    (2,414
    )CMO 4
    
    
    58.96
    
    
    
    1393
    
    
    
    17.00
    %
    
    
    26.60
    %
    
    
    45.00
    %
    
    
    13.81
    %
    
    
    
    
    
    
    (290
    )
    
    
    (1,762
    )
    
    
    (2,052
    )$
    (1,894
    )
    
    $
    (4,461
    )
    
    $
    (1,722
    )
    
    $
    (8,077
    )
      
    
    Detailed credit and structural evaluation for each piece of collateral in the CDO;
    
    Collateral performance projections for each piece of
collateral in the CDO (default, recovery and prepayment/amortization probabilities);
    
    Terms of the CDO structure, as laid out in the indenture:
    
    The cash flow waterfall (for both interest and principal);
    
    Overcollateralization and interest coverage tests;
    
    Events of default/liquidation;
    
    Mandatory auction call;
    
    Optional redemption; and
    
    Hedge agreements; and discounted cash flow modeling
   42




---



##### Table of Contents



YTDOther-than-temporary Impairment(OTTI)Single/
    
    Class/
    
    Amortized
    
    
    Fair
    
    
    Unrealized
    
    
    CreditName
    
    
    
    Pooled
    
    Tranche
    
    Cost
    
    
    Value
    
    
    Loss
    
    
    Portion
    
    
    Other
    
    
    TotalMM Caps Funding I Ltd
    
    
    
    Pooled
    
    M
    
    $
    2,150
    
    
    $
    1,046
    
    
    $
    (1,104
    )
    
    $
    
    
    
    $
    
    
    
    $
    MM Community Funding Ltd
    
    
    
    Pooled
    
    B
    
    
    2,175
    
    
    
    1,152
    
    
    
    (1,023
    )
    
    
    (2,826
    )
    
    
    (1,023
    )
    
    
    (3,849
    )Preferred Term Securities V
    
    
    
    Pooled
    
    M
    
    
    1,323
    
    
    
    473
    
    
    
    (850
    )
    
    
    (54
    )
    
    
    (850
    )
    
    
    (904
    )Tpref Funding III Ltd
    
    
    
    Pooled
    
    B-2
    
    
    3,051
    
    
    
    1,143
    
    
    
    (1,908
    )
    
    
    (949
    )
    
    
    (1,908
    )
    
    
    (2,857
    )Trapeza 2007-13A LLC
    
    
    
    Pooled
    
    D
    
    
    15
    
    
    
    
    
    
    
    (15
    )
    
    
    (1,861
    )
    
    
    (15
    )
    
    
    (1,876
    )New South Capital Corp
    
    (1)
    
    Single
    
    Sole
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,000
    )
    
    
    
    
    
    
    (5,000
    )Emigrant Capital Trust
    
    (2)
    
    Single
    
    Sole
    
    
    5,000
    
    
    
    1,236
    
    
    
    (3,764
    )
    
    
    
    
    
    
    
    
    
    
    $
    13,714
    
    
    $
    5,050
    
    
    $
    (8,664
    )
    
    $
    (10,690
    )
    
    $
    (3,796
    )
    
    $
    (14,486
    )
 Original Collateral
    
    Performing CollateralPercent of Actual
    
    Percent of Expected
    
    (3)Lowest
    
    Performing
    
    Deferrals and
    
    Deferrals and
    
    ExcessName
    
    
    
    Rating
    
    Banks
    
    Defaults
    
    Defaults
    
    SubordinationMM Caps Funding I Ltd
    
    
    
    Ca
    
    
    26
    
    
    
    9
    %
    
    
    19
    %
    
    
    4
    %MM Community Funding Ltd
    
    
    
    Ca
    
    
    10
    
    
    
    15
    %
    
    
    51
    %
    
    
    0
    %Preferred Term Securities V
    
    
    
    Ba3
    
    
    1
    
    
    
    5
    %
    
    
    52
    %
    
    
    0
    %Tpref Funding III Ltd
    
    
    
    Ca
    
    
    25
    
    
    
    23
    %
    
    
    23
    %
    
    
    0
    %Trapeza 2007-13A LLC
    
    
    
    C
    
    
    40
    
    
    
    25
    %
    
    
    26
    %
    
    
    0
    %New South Capital Corp
    
    (1)
    
    NR
    
    NA
    
    NA
    
    NA
    
    NAEmigrant Capital Trust
    
    (2)
    
    CC
    
    NA
    
    NA
    
    NA
    
    NA
 CurrentFair Value (Price
    
    Discount Margin
    
    YieldName
    
    
    
    to Par)
    
    (Basis Points)
    
    (Basis Points)MM Caps Funding I Ltd
    
    
    
    $
    52.30
    
    
    Swap + 1500
    
    9.48% FixedMM Community Funding Ltd
    
    
    
    
    23.03
    
    
    LIBOR + 1400
    
    LIBOR + 310Preferred Term Securities V
    
    
    
    
    34.35
    
    
    LIBOR + 1500
    
    LIBOR + 210Tpref Funding III Ltd
    
    
    
    
    28.57
    
    
    LIBOR + 1300
    
    LIBOR + 190Trapeza 2007-13A LLC
    
    
    
    
    0.01
    
    
    LIBOR + 1800
    
    LIBOR + 120Emigrant Capital Trust
    
    (2)
    
    
    24.72
    
    
    LIBOR + 1806
    
    LIBOR + 200
 
 (1)
    
    Management received notification in April 2009 that interest payments on this issue will be
deferred for up to 20 quarters. In addition, New Souths external auditor issued a going
concern opinion on May 2, 2009. Management determined that there was not sufficient positive
evidence that this issue will ever pay principal or interest. Therefore, OTTI was recognized
on the full amount of the security during the first quarter of 2009.(2)
    
    There has been no notification of deferral or default on this issue. An analysis of the
company indicates there is adequate capital and liquidity to service the debt. The discount
margin of 1806 basis points was derived from implied credit spreads from certain publicly
traded trust preferred securities within the issuers peer group.(3)
    
    Excess subordination represents the additional defaults in excess of both the current and
projected defaults the issue can absorb before the security experiences any credit impairment.
Excess subordination is calculated by determining what level of defaults an issue can experience before the security has any credit impairment and then subtracting both the
current and projected future defaults. 43




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##### Table of Contents



For the Three-
    
    
    For the Nine-Months Ended
    
    
    Months EndedSeptember 30, 2009
    
    
    September 30, 2009Balance at beginning of period
    
    $
    11,626
    
    
    $
    Amounts related to credit losses for which an OTTI was not previously recognized
    
    
    344
    
    
    
    10,980Reductions for securities sold during the period
    
    
    
    
    
    
    Increases in credit loss for which an OTTI was previously recognized when the
investor does not intend to sell the security and it is not more likely than not
that the entity will be required to sell the security before recovery of its
amortized cost
    
    
    3,180
    
    
    
    4,170Reductions for securities where there is an intent to sale or requirement to sale
    
    
    
    
    
    
    Reductions for increases in cash flows expected to be collected
    
    
    
    
    
    
    Balance at end of period
    
    $
    15,150
    
    
    $
    15,150
     
    
    The significance of the decline in net assets of FHLB Atlanta as compared to the capital
stock amount for FHLB Atlanta and the length of time this decline has persisted.
    
    Commitments by FHLB Atlanta to make payments required by law or regulation and the level
of such payments in relation to the operating performance of FHLB Atlanta.
    
    The impact of legislative and regulatory changes on financial institutions and,
accordingly, on the customer base of FHLB Atlanta.
    
    The liquidity position of FHLB Atlanta.
  44




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##### Table of Contents



Loans
 Composition of Loan Portfolio, Yield Changes and Diversification.
  Distribution of Loans by Category
(Dollars in thousands)
 September 30, 2009
    
    
    December 31, 2008Percent of
    
    
    
    
    
    
    Percent ofAmount
    
    
    Total
    
    
    Amount
    
    
    TotalCommercial and industrial
    
    $
    193,022
    
    
    
    7.92
    %
    
    $
    207,372
    
    
    
    8.95
    %Real estate  construction and land development (1)
    
    
    664,545
    
    
    
    27.27
    
    
    
    637,587
    
    
    
    27.52Real estate  mortgagesSingle-family
    
    
    695,736
    
    
    
    28.55
    
    
    
    655,216
    
    
    
    28.28Commercial
    
    
    793,889
    
    
    
    32.56
    
    
    
    726,704
    
    
    
    31.37Other
    
    
    29,720
    
    
    
    1.22
    
    
    
    31,187
    
    
    
    1.34Consumer
    
    
    59,497
    
    
    
    2.44
    
    
    
    57,877
    
    
    
    2.50Other
    
    
    858
    
    
    
    0.04
    
    
    
    972
    
    
    
    0.04Total loans
    
    
    2,437,267
    
    
    
    100.0
    %
    
    
    2,316,915
    
    
    
    100.0
    %Unearned income
    
    
    (2,733
    )
    
    
    
    
    
    
    (1,994
    )Allowance for loan losses
    
    
    (34,336
    )
    
    
    
    
    
    
    (28,850
    )Net loans
    
    $
    2,400,198
    
    
    
    
    
    
    $
    2,286,071
 
 (1)
    
    A further analysis of the components of our real estate construction and land development
loans as of September 30, 2009 and December 31, 2008 is as follows: Residential
    
    
    CommercialDevelopment
    
    
    Development
    
    
    Other
    
    
    Total(Dollars in thousands)As of September 30, 2009Alabama segment
    
    $
    162,314
    
    
    $
    85,351
    
    
    $
    12,476
    
    
    $
    260,141Florida segment
    
    
    131,426
    
    
    
    243,264
    
    
    
    10,940
    
    
    
    385,630Other
    
    
    7,856
    
    
    
    10,918
    
    
    
    
    
    
    
    18,774Total
    
    $
    301,596
    
    
    $
    339,533
    
    
    $
    23,416
    
    
    $
    664,545As of December 31, 2008Alabama segment
    
    $
    173,579
    
    
    $
    76,315
    
    
    $
    17,830
    
    
    $
    267,724Florida segment
    
    
    141,003
    
    
    
    201,688
    
    
    
    13,573
    
    
    
    356,264Other
    
    
    122
    
    
    
    13,477
    
    
    
    
    
    
    
    13,599Total
    
    $
    314,704
    
    
    $
    291,480
    
    
    $
    31,403
    
    
    $
    637,587
 45




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##### Table of Contents



September 30,
    
    December 31,
    
    Percent2009
    
    2008
    
    Change(Dollars in thousands)Total loans, net of unearned income
    
    $
    2,434,534
    
    
    $
    2,314,921
    
    
    
    5.17
    %Alabama segment
    
    
    952,845
    
    
    
    935,232
    
    
    
    1.88Florida segment
    
    
    1,172,291
    
    
    
    1,060,994
    
    
    
    10.49Other
    
    
    309,398
    
    
    
    318,695
    
    
    
    (2.92
    )
 Allowance for Loan Losses
 Overview.
 ASC 450-20.
 
    
    trends in volume;
    
    effects of changes in credit concentrations;
    
    levels of and trends in delinquencies, classified loans, and non-performing assets;
    
    levels of and trends in charge-offs and recoveries;
    
    changes in lending policies and underwriting guidelines;
    
    national and local economic trends and condition; and
    
    mergers and acquisitions.
 ASC 310-35.
 46




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##### Table of Contents



Allocation of the Allowance for Loan Losses.
   Allocation of the Allowance for Loan Losses
 September 30, 2009
    
    
    December 31, 2008Percent of
    
    
    
    
    
    
    Percent ofLoans in Each
    
    
    
    
    
    
    Loans in EachCategory to
    
    
    
    
    
    
    Category toAmount
    
    
    Total Loans
    
    
    Amount
    
    
    Total Loans(Dollars in thousands)Commercial and industrial
    
    $
    1,243
    
    
    
    7.9
    %
    
    $
    2,136
    
    
    
    8.9
    %Real estate  construction and land development
    
    
    14,540
    
    
    
    27.3
    
    
    
    12,168
    
    
    
    27.5Real estate  mortgagesSingle-family
    
    
    9,966
    
    
    
    28.6
    
    
    
    7,159
    
    
    
    28.3Commercial
    
    
    5,719
    
    
    
    32.6
    
    
    
    5,440
    
    
    
    31.3Other
    
    
    159
    
    
    
    1.2
    
    
    
    247
    
    
    
    1.3Consumer
    
    
    2,709
    
    
    
    2.4
    
    
    
    1,700
    
    
    
    2.7Total
    
    $
    34,336
    
    
    
    100.0
    %
    
    $
    28,850
    
    
    
    100.0
    %
   47




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##### Table of Contents



.
   48




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##### Table of Contents



Summary of Loan Loss Experience.
 Summary of Loan Loss Experience
 Three Months
    
    
    Nine MonthsEnded
    
    
    Ended
    
    
    Year EndedSeptember 30,
    
    
    September 30,
    
    
    December 31,2009
    
    
    2008
    
    
    2009
    
    
    2008
    
    
    2008(Dollars in Thousands)Allowance for loan losses at beginning of period
    
    $
    33,504
    
    
    $
    27,243
    
    
    $
    28,850
    
    
    $
    22,868
    
    
    $
    22,868Charge-offs:Commercial and industrial
    
    
    299
    
    
    
    88
    
    
    
    496
    
    
    
    400
    
    
    
    504Real estate  construction and land development
    
    
    1,751
    
    
    
    877
    
    
    
    2,806
    
    
    
    1,542
    
    
    
    2,095Real estate  mortgageSingle-family
    
    
    1,396
    
    
    
    606
    
    
    
    2,764
    
    
    
    2,089
    
    
    
    2,460Commercial
    
    
    85
    
    
    
    
    
    
    
    933
    
    
    
    411
    
    
    
    411Other
    
    
    
    
    
    
    3
    
    
    
    186
    
    
    
    109
    
    
    
    241Consumer
    
    
    966
    
    
    
    627
    
    
    
    2,368
    
    
    
    1,777
    
    
    
    2,490Other
    
    
    49
    
    
    
    46
    
    
    
    315
    
    
    
    145
    
    
    
    243Total charge-offs
    
    
    4,546
    
    
    
    2,247
    
    
    
    9,868
    
    
    
    6,473
    
    
    
    8,444Recoveries:Commercial and industrial
    
    
    36
    
    
    
    117
    
    
    
    144
    
    
    
    595
    
    
    
    646Real estate  construction and land development
    
    
    9
    
    
    
    8
    
    
    
    35
    
    
    
    41
    
    
    
    44Real estate  mortgageSingle-family
    
    
    27
    
    
    
    33
    
    
    
    59
    
    
    
    76
    
    
    
    89Commercial
    
    
    35
    
    
    
    99
    
    
    
    40
    
    
    
    124
    
    
    
    128Other
    
    
    13
    
    
    
    16
    
    
    
    230
    
    
    
    39
    
    
    
    71Consumer
    
    
    51
    
    
    
    62
    
    
    
    134
    
    
    
    147
    
    
    
    181Other
    
    
    38
    
    
    
    34
    
    
    
    110
    
    
    
    110
    
    
    
    155Total recoveries
    
    
    209
    
    
    
    369
    
    
    
    752
    
    
    
    1,132
    
    
    
    1,314Net charge-offs
    
    
    4,337
    
    
    
    1,878
    
    
    
    9,116
    
    
    
    5,341
    
    
    
    7,130Provision for loan losses
    
    
    5,169
    
    
    
    2,305
    
    
    
    14,602
    
    
    
    10,143
    
    
    
    13,112Allowance for loan losses at end of period
    
    $
    34,336
    
    
    $
    27,670
    
    
    $
    34,336
    
    
    $
    27,670
    
    
    $
    28,850Loans at end of period, net of unearned income
    
    $
    2,434,534
    
    
    $
    2,219,041
    
    
    $
    2,434,534
    
    
    $
    2,219,041
    
    
    $
    2,314,921Average loans, net of unearned income
    
    
    2,422,871
    
    
    
    2,181,873
    
    
    
    2,384,287
    
    
    
    2,112,800
    
    
    
    2,147,524Ratio of ending allowance to ending loans
    
    
    1.41
    %
    
    
    1.25
    %
    
    
    1.41
    %
    
    
    1.25
    %
    
    
    1.25
    %Ratio of net charge-offs to average loans (1)
    
    
    0.71
    
    
    
    0.34
    
    
    
    0.51
    
    
    
    0.34
    
    
    
    0.33Net charge-offs as a percentage of:Provision for loan losses
    
    
    83.90
    
    
    
    81.48
    
    
    
    62.43
    
    
    
    52.66
    
    
    
    54.38Allowance for loan losses (1)
    
    
    50.10
    
    
    
    27.00
    
    
    
    35.36
    
    
    
    25.78
    
    
    
    24.71Allowance for loan losses as a percentage of nonperforming loans
    
    
    22.50
    
    
    
    44.96
    
    
    
    22.50
    
    
    
    44.96
    
    
    
    44.12
 
 (1)
    
    Annualized. Nonperforming
Assets.
 49




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##### Table of Contents



Nonperforming Assets
 September 30, 2009
    
    
    December 31, 2008(Dollars in thousands)Nonaccrual
    
    $
    143,507
    
    
    $
    54,712Accruing loans 90 days or more delinquent
    
    
    9,102
    
    
    
    8,033Total nonperforming loans
    
    
    152,609
    
    
    
    62,745Other real estate owned assets
    
    
    42,259
    
    
    
    19,971Repossessed assets
    
    
    505
    
    
    
    332Total nonperforming assets
    
    $
    195,373
    
    
    $
    83,048Restructured and performing under restructured terms
    
    $
    21,743
    
    
    $
    2,643Nonperforming loans as a percentage of loans
    
    
    6.27
    %
    
    
    2.72
    %Nonperforming assets as a percentage of loans plus
nonperforming assets
    
    
    7.89
    %
    
    
    3.56
    %Nonperforming assets as a percentage of total assets
    
    
    6.06
    %
    
    
    2.72
    %
  September 30,
    
    
    December 31,2009
    
    
    2008(Dollars in thousands)Commercial and industrial
    
    $
    2,312
    
    
    $
    166Real estate  construction and land development
    
    
    86,876
    
    
    
    20,976Real estate  mortgagesSingle-family
    
    
    42,365
    
    
    
    22,730Commercial
    
    
    13,923
    
    
    
    14,686Other
    
    
    5,670
    
    
    
    2,981Consumer
    
    
    649
    
    
    
    723Other
    
    
    814
    
    
    
    483Total nonperforming loans
    
    $
    152,609
    
    
    $
    62,745
   September 30,
    
    
    December 31,2009
    
    
    2008Acreage
    
    $
    2,251
    
    
    $
    1,222Commercial building
    
    
    4,388
    
    
    
    656Residential condominiums
    
    
    4,614
    
    
    
    1,314Residential single-family homes
    
    
    15,379
    
    
    
    9,394Residential lots
    
    
    15,257
    
    
    
    7,277Other
    
    
    370
    
    
    
    108Other real estate owned
    
    $
    42,259
    
    
    $
    19,971
 Troubled Debt Restructurings (TDRs),
 50




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##### Table of Contents



Impaired Loans.
  September 30, 2009
    
    
    December 31, 2008Outstanding
    
    
    Specific
    
    
    Outstanding
    
    
    SpecificBalance
    
    
    Allowance
    
    
    Balance
    
    
    Allowance(Dollars in thousands)Commercial and industrial
    
    $
    1,704
    
    
    $
    919
    
    
    $
    515
    
    
    $
    42Real estate  construction and land development
    
    
    86,772
    
    
    
    5,406
    
    
    
    18,155
    
    
    
    1,570Real estate  mortgagesSingle-family
    
    
    40,029
    
    
    
    3,949
    
    
    
    18,063
    
    
    
    2,251Commercial
    
    
    26,471
    
    
    
    683
    
    
    
    15,615
    
    
    
    1,173Other
    
    
    2,227
    
    
    
    1
    
    
    
    532
    
    
    
    70Total
    
    $
    157,203
    
    
    $
    10,896
    
    
    $
    52,880
    
    
    $
    5,106
 Potential Problem Loans.
 Deposits
  51




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##### Table of Contents



September 30,
    
    
    December 31,
    
    
    Percent2009
    
    
    2008
    
    
    Change(Dollars in thousands)Noninterest-bearing demand
    
    $
    255,196
    
    
    $
    212,732
    
    
    
    20.0
    %Alabama segment
    
    
    123,729
    
    
    
    98,133
    
    
    
    26.1Florida segment
    
    
    84,079
    
    
    
    72,250
    
    
    
    16.4Other
    
    
    47,388
    
    
    
    42,349
    
    
    
    11.9Interest-bearing demand
    
    
    641,613
    
    
    
    632,430
    
    
    
    1.5Alabama segment
    
    
    364,026
    
    
    
    327,387
    
    
    
    11.2Florida segment
    
    
    233,217
    
    
    
    185,239
    
    
    
    25.9Other
    
    
    44,370
    
    
    
    119,804
    
    
    
    (63.0
    )Savings
    
    
    266,646
    
    
    
    185,522
    
    
    
    43.7Alabama segment
    
    
    143,435
    
    
    
    106,946
    
    
    
    34.1Florida segment
    
    
    121,240
    
    
    
    76,449
    
    
    
    58.6Other
    
    
    1,971
    
    
    
    2,127
    
    
    
    (7.3
    )Time deposits
    
    
    1,456,506
    
    
    
    1,312,304
    
    
    
    11.0Alabama segment
    
    
    693,786
    
    
    
    608,056
    
    
    
    14.1Florida segment
    
    
    537,893
    
    
    
    490,266
    
    
    
    9.7Other
    
    
    224,827
    
    
    
    213,982
    
    
    
    5.1Total deposits
    
    $
    2,619,961
    
    
    $
    2,342,988
    
    
    
    11.8
    %Alabama segment
    
    $
    1,324,976
    
    
    $
    1,140,522
    
    
    
    16.2
    %Florida segment
    
    $
    976,429
    
    
    $
    824,204
    
    
    
    18.5
    %Other
    
    $
    318,556
    
    
    $
    378,262
    
    
    
    (15.8
    )%
 Borrowings
  Accrued
Expenses and Other Liabilities.
 Stockholders Equity
 Overview.
 52




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##### Table of Contents



Other Comprehensive Income.
 Pre-Tax
    
    
    
    
    
    
    Net ofAmount
    
    
    Income Tax
    
    
    Income Tax(In thousands)Three months ended September 30, 2009Unrealized gain on available for sale securities
    
    $
    3,119
    
    
    $
    (1,154
    )
    
    $
    1,965Less reclassification adjustment for security
gains realized in net loss
    
    
    (2,121
    )
    
    
    785
    
    
    
    (1,336
    )Unrealized loss on derivatives
    
    
    (219
    )
    
    
    81
    
    
    
    (138
    )Net unrealized gain
    
    $
    779
    
    
    $
    (288
    )
    
    $
    491Nine Months ended September 30, 2009Unrealized loss on available for sale securities
    
    $
    (8,936
    )
    
    $
    3,306
    
    
    $
    (5,630
    )Less reclassification adjustment for security
losses realized in net loss
    
    
    9,506
    
    
    
    (3,517
    )
    
    
    5,989Unrealized gain on derivatives
    
    
    106
    
    
    
    (39
    )
    
    
    67Net unrealized gain
    
    $
    676
    
    
    $
    (250
    )
    
    $
    426
  Regulatory Capital.
 To Be WellFor Capital
    
    Capitalized UnderAdequacy
    
    Prompt CorrectiveActual
    
    Purposes
    
    ActionSuperior Bank
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioAs of September 30, 2009Tier 1 Core Capital (to Adjusted Total Assets)
    
    $
    265,445
    
    
    
    8.32
    %
    
    $
    127,550
    
    
    
    4.00
    %
    
    $
    159,438
    
    
    
    5.00
    %Total Capital (to Risk Weighted Assets)
    
    
    298,708
    
    
    
    11.27
    
    
    
    212,024
    
    
    
    8.00
    
    
    
    265,030
    
    
    
    10.00Tier 1 Capital (to Risk Weighted Assets)
    
    
    265,445
    
    
    
    10.02
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    159,018
    
    
    
    6.00Tangible Capital (to Adjusted Total Assets)
    
    
    265,445
    
    
    
    8.32
    
    
    
    47,831
    
    
    
    1.50
    
    
    
    N/A
    
    
    
    N/A
  To Be WellFor Capital
    
    Capitalized UnderAdequacy
    
    Prompt CorrectiveActual
    
    Purposes
    
    ActionSuperior Bancorp
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioAs of September 30, 2009Tier 1 Core Capital (to Adjusted Total Assets)
    
    $
    257,197
    
    
    
    8.08
    %
    
    $
    127,277
    
    
    
    4.00
    %
    
    $
    159,097
    
    
    
    5.00
    %Total Capital (to Risk Weighted Assets)
    
    
    290,460
    
    
    
    11.00
    
    
    
    211,203
    
    
    
    8.00
    
    
    
    264,004
    
    
    
    10.00Tier 1 Capital (to Risk Weighted Assets)
    
    
    257,197
    
    
    
    9.74
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    158,402
    
    
    
    6.00Tangible Capital (to Adjusted Total Assets)
    
    
    257,197
    
    
    
    8.08
    
    
    
    47,729
    
    
    
    1.50
    
    
    
    N/A
    
    
    
    N/A
 Liquidity
  53




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##### Table of Contents



Forward-Looking Statements
    54




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   September 30,
    
    December 31,12-Month Gap
    
    2009
    
    2008Interest-bearing liabilities in excess of interest-earning assets based on repricing date
    
    $
    (170,000
    )
    
    $
    (297,000
    )Cumulative 12-month Gap Ratio
    
    
    .92
    
    
    
    .86
 Increase (Decrease) in Net Interest IncomeChange (in Basis Points) in Interest
    
    September 30, 2009
    
    December 31, 2008Rates (12-Month Projection)
    
    Amount
    
    Percent
    
    Amount
    
    Percent+200 BP (1)
    
    $
    4,257
    
    
    
    4.2
    %
    
    $
    1,200
    
    
    
    1.7
    %- 200 BP (2)
    
    NCM
    
    NCM
    
    NCM
    
    NCM
 
 (1)
    
    Results are within our asset and liability management policy.(2)
    
    Not considered meaningful in the current rate environment 55




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##### Table of Contents



Change (in Basis Points) in
    
    
    
    
    
    ChangeInterest Rates
    
    EVE
    
    Amount
    
    Percent(Dollars in thousands)+ 200 BP
    
    $
    333,816
    
    
    $
    15,976
    
    
    
    5.0
    %+ 100 BP
    
    
    328,461
    
    
    
    10,621
    
    
    
    3.30 BP
    
    
    317,840
    
    
    
    
    
    
    
    - 100 BP
    
    
    323,200
    
    
    
    (5,360
    )
    
    
    (1.7
    )
  
 ITEM 4. CONTROLS AND PROCEDURES
       
 PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  56




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##### Table of Contents



ITEM 1A. RISK FACTORS
  Higher FDIC deposit insurance premiums and assessments could adversely affect our financial
condition.
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  57




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##### Table of Contents



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
  31.1
    
    Certification of principal executive officer pursuant to Rule 13a-14(a).31.2
    
    Certification of principal financial officer pursuant to 13a-14(a).32.1
    
    Certification of principal executive officer pursuant to 18 U.S.C. Section 1350.32.2
    
    Certification of principal financial officer pursuant to 18 U.S.C. Section 1350.
 58




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##### Table of Contents



Date: November 9, 2009
    By:
    /s/ C. Stanley BaileyC. Stanley BaileyChief Executive OfficerDate: November 9, 2009
    By:
    /s/ James A. WhiteJames A. WhiteChief Financial Officer 
(Principal Financial Officer) 59